UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2017



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-2989



	COMMERCE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)



Missouri		43-0889454
(State of Incorporation)		(IRS Employer Identification No.)

1000 Walnut, Kansas City, MO		64106
(Address of principal executive offices)		(Zip Code)

(816) 234-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company £	Emerging growth company £

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of ~~August~~November 1, 2017, the registrant had outstanding ~~101,625,940~~101,632,724 shares of its $5 par value common stock, registrant’s only class of common stock.

Commerce Bancshares, Inc. and Subsidiaries

Form 10-Q



			Page
INDEX
Part I	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of ~~June~~September 30, 2017 (unaudited) and December 31, 2016	3
		Consolidated Statements of Income for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2017 and 2016 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2017 and 2016 (unaudited)	5
		Consolidated Statements of Changes in Equity for the ~~Six~~Nine Months Ended ~~June~~September 30, 2017 and 2016 (unaudited)	6
		Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2017 and 2016 (unaudited)	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59
	Item 4.	Controls and Procedures	60

Part II	Other Information
	Item 1.	Legal Proceedings	61
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
	Item 6.	Exhibits	61
Signatures			62
~~Index to Exhibits~~			63

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


	June 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016
	(Unaudited)						(Unaudited)
	(In thousands)						(In thousands)
ASSETS
Loans	$	13,626,592		$	13,412,736		$	13,745,492		$	13,412,736
Allowance for loan losses	(157,832		)	(155,932		)	(157,832		)	(155,932		)
Net loans	13,468,760			13,256,804			13,587,660			13,256,804
Loans held for sale (including $14,118,000 and $9,263,000 of residential mortgage loans carried at fair value at June 30, 2017 and December 31, 2016, respectively)	22,002			14,456
Loans held for sale (including $11,320,000 and $9,263,000 of residential mortgage loans carried at fair value at September 30, 2017 and December 31, 2016, respectively)							17,337			14,456
Investment securities:
Available for sale ($719,820,000 and $568,553,000 pledged at June 30, 2017 and
Available for sale ($667,199,000 and $568,553,000 pledged at September 30, 2017 and
December 31, 2016, respectively, to secure swap and repurchase agreements)	9,439,701			9,649,203			9,109,287			9,649,203
Trading	22,291			22,225			24,605			22,225
Non-marketable	102,388			99,558			99,268			99,558
Total investment securities	9,564,380			9,770,986			9,233,160			9,770,986
Federal funds sold and short-term securities purchased under agreements to resell	16,520			15,470			32,630			15,470
Long-term securities purchased under agreements to resell	625,000			725,000			700,000			725,000
Interest earning deposits with banks	80,860			272,275			105,422			272,275
Cash and due from banks	433,747			494,690			461,724			494,690
Land, buildings and equipment, net	334,586			337,705			335,348			337,705
Goodwill	138,921			138,921			138,921			138,921
Other intangible assets, net	7,002			6,709			7,388			6,709
Other assets	387,065			608,408			359,551			608,408
Total assets	$	25,078,843		$	25,641,424		$	24,979,141		$	25,641,424
LIABILITIES AND EQUITY
Deposits:
Non-interest bearing	$	7,314,506		$	7,429,398		$	7,536,127		$	7,429,398
Savings, interest checking and money market	11,427,615			11,430,789			11,091,200			11,430,789
Time open and C.D.'s of less than $100,000	679,668			713,075			657,891			713,075
Time open and C.D.'s of $100,000 and over	1,403,873			1,527,833			1,158,555			1,527,833
Total deposits	20,825,662			21,101,095			20,443,773			21,101,095
Federal funds purchased and securities sold under agreements to repurchase	1,256,444			1,723,905			1,408,984			1,723,905
Other borrowings	101,903			102,049			102,553			102,049
Other liabilities	266,627			213,243			319,354			213,243
Total liabilities	22,450,636			23,140,292			22,274,664			23,140,292
Commerce Bancshares, Inc. stockholders’ equity:
Preferred stock, $1 par value
Authorized 2,000,000 shares; issued 6,000 shares	144,784			144,784			144,784			144,784
Common stock, $5 par value
Authorized 120,000,000 shares;
issued 102,003,046 shares	510,015			510,015			510,015			510,015
Capital surplus	1,546,534			1,552,454			1,548,318			1,552,454
Retained earnings	390,853			292,849			440,261			292,849
Treasury stock of 207,294 shares at June 30, 2017
Treasury stock of 197,566 shares at September 30, 2017
and 364,711 shares at December 31, 2016, at cost	(10,373		)	(15,294		)	(9,895		)	(15,294		)
Accumulated other comprehensive income	42,070			10,975			67,061			10,975
Total Commerce Bancshares, Inc. stockholders' equity	2,623,883			2,495,783			2,700,544			2,495,783
Non-controlling interest	4,324			5,349			3,933			5,349
Total equity	2,628,207			2,501,132			2,704,477			2,501,132
Total liabilities and equity	$	25,078,843		$	25,641,424		$	24,979,141		$	25,641,424

See accompanying notes to consolidated financial statements.

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended June 30					For the Six Months Ended June 30					For the Three Months Ended September 30						For the Nine Months Ended September 30
(In thousands, except per share data)	2017		2016			2017		2016			2017			2016			2017			2016
	(Unaudited)										(Unaudited)
INTEREST INCOME
Interest and fees on loans	$	134,273	$	121,151		$	262,596	$	240,484		$	138,827		$	123,750		$	401,423		$	364,234
Interest and fees on loans held for sale	263		692			459		827			287			334			746			1,161
Interest on investment securities	54,975		54,698			110,240		103,589			50,585			51,661			160,825			155,250
Interest on federal funds sold and short-term securities purchased under
agreements to resell	37		19			60		43			78			20			138			63
Interest on long-term securities purchased under agreements to resell	3,684		3,354			7,477		6,829			3,805			3,328			11,282			10,157
Interest on deposits with banks	362		151			759		421			662			268			1,421			689
Total interest income	193,594		180,065			381,591		352,193			194,244			179,361			575,835			531,554
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market	4,342		3,548			8,232		7,032			4,441			3,619			12,673			10,651
Time open and C.D.'s of less than $100,000	674		709			1,318		1,451			676			683			1,994			2,134
Time open and C.D.'s of $100,000 and over	2,822		2,347			5,585		4,333			2,784			2,186			8,369			6,519
Interest on federal funds purchased and securities sold under
agreements to repurchase	2,038		725			3,577		1,613			2,846			724			6,423			2,337
Interest on other borrowings	911		907			1,799		2,160			906			906			2,705			3,066
Total interest expense	10,787		8,236			20,511		16,589			11,653			8,118			32,164			24,707
Net interest income	182,807		171,829			361,080		335,604			182,591			171,243			543,671			506,847
Provision for loan losses	10,758		9,216			21,886		18,655			10,704			7,263			32,590			25,918
Net interest income after provision for loan losses	172,049		162,613			339,194		316,949			171,887			163,980			511,081			480,929
NON-INTEREST INCOME
Bank card transaction fees	44,999		45,065			88,203		89,535			44,521			47,006			132,724			136,541
Trust fees	33,120		30,241			65,134		59,484			34,620			30,951			99,754			90,435
Deposit account charges and other fees	22,861		21,328			44,803		42,019			22,659			22,241			67,462			64,260
Capital market fees	2,156		2,500			4,498		5,225			1,755			2,751			6,253			7,976
Consumer brokerage services	3,726		3,491			7,375		7,000			3,679			3,375			11,054			10,375
Loan fees and sales	4,091		3,196			7,259		5,706			3,590			3,123			10,849			8,829
Other	12,131		10,749			22,878		26,625			11,418			9,872			34,296			36,497
Total non-interest income	123,084		116,570			240,150		235,594			122,242			119,319			362,392			354,913
INVESTMENT SECURITIES GAINS (LOSSES), NET	1,651		(744		)	879		(1,739		)
INVESTMENT SECURITIES LOSSES, NET											(3,037		)	(1,965		)	(2,158		)	(3,704		)
NON-INTEREST EXPENSE
Salaries and employee benefits	108,829		104,808			221,198		211,667			111,382			107,004			332,580			318,671
Net occupancy	11,430		11,092			22,873		22,395			11,459			12,366			34,332			34,761
Equipment	4,776		4,781			9,385		9,415			4,491			4,842			13,876			14,257
Supplies and communication	5,446		5,693			11,155		12,522			5,517			5,968			16,672			18,490
Data processing and software	23,356		22,770			46,453		45,669			22,700			23,663			69,153			69,332
Marketing	4,488		4,389			7,712		8,202			4,676			4,399			12,388			12,601
Deposit insurance	3,592		3,143			7,063		6,308			3,479			3,576			10,542			9,884
Other	22,677		20,413			45,585		38,384			20,868			19,424			66,453			57,808
Total non-interest expense	184,594		177,089			371,424		354,562			184,572			181,242			555,996			535,804
Income before income taxes	112,190		101,350			208,799		196,242			106,520			100,092			315,319			296,334
Less income taxes	33,201		31,542			58,108		60,912			32,294			30,942			90,402			91,854
Net income	78,989		69,808			150,691		135,330			74,226			69,150			224,917			204,480
Less non-controlling interest expense (income)	29		(85		)	227		63			(338		)	605			(111		)	668
Net income attributable to Commerce Bancshares, Inc.	78,960		69,893			150,464		135,267			74,564			68,545			225,028			203,812
Less preferred stock dividends	2,250		2,250			4,500		4,500			2,250			2,250			6,750			6,750
Net income available to common shareholders	$	76,710	$	67,643		$	145,964	$	130,767		$	72,314		$	66,295		$	218,278		$	197,062
Net income per common share — basic	$	.75	$	.67		$	1.43	$	1.29		$	.71		$	.65		$	2.14		$	1.94
Net income per common share — diluted	$	.75	$	.66		$	1.43	$	1.28		$	.71		$	.65		$	2.14		$	1.93

See accompanying notes to consolidated financial statements.

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


		For the Three Months Ended June 30					For the Six Months Ended June 30						For the Three Months Ended September 30						For the Nine Months Ended September 30
(In thousands)		2017		2016			2017		2016				2017			2016			2017			2016
		(Unaudited)											(Unaudited)
Net income		$	78,989	$	69,808		$	150,691	$	135,330			$	74,226		$	69,150		$	224,917		$	204,480
Other comprehensive income (loss):
Net unrealized gains (losses) on securities for which a portion of an other-than-temporary impairment has been recorded in earnings		76		—			171		(398		)		286			46			457			(352		)
Net unrealized gains on other securities		11,241		31,139			30,243		101,634
Net unrealized gains (losses) on other securities													24,356			(13,747		)	54,599			87,887
Pension loss amortization		341		356			681		718				349			359			1,030			1,077
Other comprehensive income		11,658		31,495			31,095		101,954
Other comprehensive income (loss)													24,991			(13,342		)	56,086			88,612
Comprehensive income		90,647		101,303			181,786		237,284				99,217			55,808			281,003			293,092
Less non-controlling interest expense (income)		29		(85		)	227		63				(338		)	605			(111		)	668
Comprehensive income attributable to Commerce Bancshares, Inc.	Comprehensive income attributable to Commerce Bancshares, Inc.	$	90,618	$	101,388		$	181,559	$	237,221		Comprehensive income attributable to Commerce Bancshares, Inc.	$	99,555		$	55,203		$	281,114		$	292,424

See accompanying notes to consolidated financial statements.

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


			Commerce Bancshares, Inc. Shareholders																					Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)	Preferred Stock		Common Stock		Capital Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest			Total			Preferred Stock		Common Stock		Capital Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest			Total
	(Unaudited)																					(Unaudited)
Balance December 31, 2016	$	144,784	$	510,015	$	1,552,454		$	292,849		$	(15,294	)	$	10,975	$	5,349		$	2,501,132		$	144,784	$	510,015	$	1,552,454		$	292,849		$	(15,294	)	$	10,975	$	5,349		$	2,501,132
Adoption of ASU 2016-09					3,441			(2,144		)									1,297							3,441			(2,144		)									1,297
Net income								150,464								227			150,691										225,028								(111		)	224,917
Other comprehensive income														31,095					31,095																56,086					56,086
Distributions to non-controlling interest																(1,252		)	(1,252		)																(1,305		)	(1,305		)
Purchases of treasury stock											(10,628		)						(10,628		)											(11,320		)						(11,320		)
Issuance of stock under purchase and equity compensation plans					(15,556		)				15,549								(7		)					(16,726		)				16,719								(7		)
Stock-based compensation					6,195														6,195							9,149														9,149
Cash dividends on common stock ($.450 per share)								(45,816		)									(45,816		)
Cash dividends on preferred stock ($.750 per depositary share)								(4,500		)									(4,500		)
Balance June 30, 2017	$	144,784	$	510,015	$	1,546,534		$	390,853		$	(10,373	)	$	42,070	$	4,324		$	2,628,207
Cash dividends on common stock ($.675 per share)																													(68,722		)									(68,722		)
Cash dividends on preferred stock ($1.125 per depositary share)																													(6,750		)									(6,750		)
Balance September 30, 2017																						$	144,784	$	510,015	$	1,548,318		$	440,261		$	(9,895	)	$	67,061	$	3,933		$	2,704,477
Balance December 31, 2015	$	144,784	$	489,862	$	1,337,677		$	383,313		$	(26,116	)	$	32,470	$	5,428		$	2,367,418		$	144,784	$	489,862	$	1,337,677		$	383,313		$	(26,116	)	$	32,470	$	5,428		$	2,367,418
Net income								135,267								63			135,330										203,812								668			204,480
Other comprehensive income														101,954					101,954																88,612					88,612
Distributions to non-controlling interest																(586		)	(586		)																(704		)	(704		)
Purchases of treasury stock											(37,462		)						(37,462		)											(38,476		)						(38,476		)
Issuance of stock under purchase and equity compensation plans					(11,873		)				11,871								(2		)					(14,057		)				14,054								(3		)
Excess tax benefit related to equity compensation plans					1,904														1,904							2,629														2,629
Stock-based compensation					6,287														6,287							8,901														8,901
Cash dividends on common stock ($.429 per share)								(43,522		)									(43,522		)
Cash dividends on preferred stock ($.750 per depositary share)								(4,500		)									(4,500		)
Balance June 30, 2016	$	144,784	$	489,862	$	1,333,995		$	470,558		$	(51,707	)	$	134,424	$	4,905		$	2,526,821
Cash dividends on common stock ($.643 per share)																													(65,294		)									(65,294		)
Cash dividends on preferred stock ($1.125 per depositary share)																													(6,750		)									(6,750		)
Balance September 30, 2016																						$	144,784	$	489,862	$	1,335,150		$	515,081		$	(50,538	)	$	121,082	$	5,392		$	2,560,813

See accompanying notes to consolidated financial statements.

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Six Months Ended June 30							For the Nine Months Ended September 30
(In thousands)	2017				2016			2017				2016
	(Unaudited)							(Unaudited)
OPERATING ACTIVITIES:
Net income	$	150,691			$	135,330		$	224,917			$	204,480
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	21,886				18,655			32,590				25,918
Provision for depreciation and amortization	19,890				20,689			29,521				30,997
Amortization of investment security premiums, net	17,827				16,014			28,173				23,357
Investment securities (gains) losses, net (A)	(879		)		1,739
Investment securities losses, net (A)								2,158				3,704
Net gains on sales of loans held for sale	(3,547		)		(2,880		)	(6,200		)		(4,924		)
Originations of loans held for sale	(96,943		)		(70,880		)	(162,552		)		(115,768		)
Proceeds from sales of loans held for sale	92,423				68,486			164,588				117,746
Net decrease in trading securities, excluding unsettled transactions	6,097				81,184			7,234				77,262
Stock-based compensation	6,195				6,287			9,149				8,901
(Increase) decrease in interest receivable	(428		)		60
Increase in interest receivable								(3,757		)		(331		)
Increase (decrease) in interest payable	(692		)		57			(223		)		269
Increase in income taxes payable	1,483				73			201				1,787
Other changes, net	(1,985		)		(9,785		)	8,511				(24,602		)
Net cash provided by operating activities	212,018				265,029			334,310				348,796
INVESTING ACTIVITIES:
Proceeds from sales of investment securities (A)	6,552				2,071			369,036				7,946
Proceeds from maturities/pay downs of investment securities (A)	910,411				1,109,707			1,384,993				1,659,778
Purchases of investment securities (A)	(625,931		)		(414,154		)	(1,072,782		)		(1,080,003		)
Net increase in loans	(234,405		)		(693,522		)	(364,765		)		(817,886		)
Long-term securities purchased under agreements to resell								(75,000		)		—
Repayments of long-term securities purchased under agreements to resell	100,000				50,000			100,000				150,000
Purchases of land, buildings and equipment	(14,117		)		(13,649		)	(22,853		)		(18,479		)
Sales of land, buildings and equipment	2,527				5,399			2,570				5,831
Net cash provided by investing activities	145,037				45,852
Net cash provided by (used in) investing activities								321,199				(92,813		)
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits	77,562				(38,985		)	(12,490		)		280,495
Net increase (decrease) in time open and C.D.'s	(157,367		)		267,339			(424,462		)		14,510
Net decrease in federal funds purchased and short-term securities sold under agreements to repurchase	(467,461		)		(331,280		)
Net decrease in federal funds purchased and securities sold under agreements to repurchase								(314,921		)		(473,661		)
Repayment of long-term borrowings	(146		)		(840		)	(218		)		(3,872		)
Additional long-term borrowings	—			—	900			—			—	1,469
Net increase in short-term borrowings								722				—
Purchases of treasury stock	(10,628		)		(37,462		)	(11,320		)		(38,476		)
Issuance of stock under equity compensation plans	(7		)		(2		)	(7		)		(3		)
Cash dividends paid on common stock	(45,816		)		(43,522		)	(68,722		)		(65,294		)
Cash dividends paid on preferred stock	(4,500		)		(4,500		)	(6,750		)		(6,750		)
Net cash used in financing activities	(608,363		)		(188,352		)	(838,168		)		(291,582		)
Increase (decrease) in cash and cash equivalents	(251,308		)		122,529
Decrease in cash and cash equivalents								(182,659		)		(35,599		)
Cash and cash equivalents at beginning of year	782,435				502,719			782,435				502,719
Cash and cash equivalents at June 30	$	531,127			$	625,248
Cash and cash equivalents at September 30								$	599,776			$	467,120
(A) Available for sale and non-marketable securities
Income tax payments, net	$	54,621			$	59,886		$	87,449			$	88,531
Interest paid on deposits and borrowings	$	21,203			$	16,532		$	32,387			$	24,438
Loans transferred to foreclosed real estate	$	461			$	861		$	1,166			$	1,031
Loans transferred from held for investment to held for sale	$	—			$	50,360
Loans transferred from held for investment to held for sale, net								$	—			$	42,688

See accompanying notes to consolidated financial statements.

Commerce Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2017 (Unaudited)

1. Principles of Consolidation and Presentation

The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2016 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the three and ~~six~~nine month periods ended ~~June~~September 30, 2017 are not necessarily indicative of results to be attained for the full year or any other interim period.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's most recent Annual Report on Form 10-K, containing the latest audited consolidated financial statements and notes thereto.

2. Loans and Allowance for Loan Losses

Major classifications within the Company’s held for investment loan portfolio at ~~June~~September 30, 2017 and December 31, 2016 are as follows:


(In thousands)	June 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Commercial:
Business	$	4,852,408	$	4,776,365	$	4,834,037	$	4,776,365
Real estate – construction and land	848,152		791,236		921,609		791,236
Real estate – business	2,727,349		2,643,374		2,700,174		2,643,374
Personal Banking:
Real estate – personal	2,009,203		2,010,397		2,029,302		2,010,397
Consumer	2,038,514		1,990,801		2,113,438		1,990,801
Revolving home equity	403,387		413,634		391,308		413,634
Consumer credit card	740,865		776,465		752,379		776,465
Overdrafts	6,714		10,464		3,245		10,464
Total loans	$	13,626,592	$	13,412,736	$	13,745,492	$	13,412,736

At ~~June~~September 30, 2017, loans of ~~$3.9~~$3.8 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of ~~$1.6~~$1.7 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

Allowance for loan losses

A summary of the activity in the allowance for loan losses during the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, respectively, follows:


		For the Three Months Ended June 30							For the Six Months Ended June 30								For the Three Months Ended September 30							For the Nine Months Ended September 30
(In thousands)		Commercial			Personal Banking		Total		Commercial			Personal Banking		Total			Commercial			Personal Banking		Total		Commercial			Personal Banking		Total
Balance at beginning of period	Balance at beginning of period	$	92,951		$	64,881	$	157,832	$	91,361		$	64,571	$	155,932	Balance at beginning of period	$	92,739		$	65,093	$	157,832	$	91,361		$	64,571	$	155,932
Provision	Provision	(111		)	10,869		10,758		1,002			20,884		21,886		Provision	24			10,680		10,704		1,026			31,564		32,590
Deductions:	Deductions:															Deductions:
Loans charged off	Loans charged off	531			13,415		13,946		1,077			25,745		26,822		Loans charged off	378			13,592		13,970		1,455			39,337		40,792
Less recoveries on loans	Less recoveries on loans	430			2,758		3,188		1,453			5,383		6,836		Less recoveries on loans	651			2,615		3,266		2,104			7,998		10,102
Net loan charge-offs (recoveries)	Net loan charge-offs (recoveries)	101			10,657		10,758		(376		)	20,362		19,986		Net loan charge-offs (recoveries)	(273		)	10,977		10,704		(649		)	31,339		30,690
Balance June 30, 2017		$	92,739		$	65,093	$	157,832	$	92,739		$	65,093	$	157,832
Balance September 30, 2017																Balance September 30, 2017	$	93,036		$	64,796	$	157,832	$	93,036		$	64,796	$	157,832
Balance at beginning of period	Balance at beginning of period	$	86,027		$	66,105	$	152,132	$	82,086		$	69,446	$	151,532	Balance at beginning of period	$	89,198		$	64,634	$	153,832	$	82,086		$	69,446	$	151,532
Provision	Provision	1,569			7,647		9,216		5,720			12,935		18,655		Provision	(1,411		)	8,674		7,263		4,309			21,609		25,918
Deductions:	Deductions:															Deductions:
Loans charged off	Loans charged off	661			11,984		12,645		2,174			23,761		25,935		Loans charged off	291			11,872		12,163		2,465			35,633		38,098
Less recoveries on loans	Less recoveries on loans	2,263			2,866		5,129		3,566			6,014		9,580		Less recoveries on loans	2,759			2,841		5,600		6,325			8,855		15,180
Net loan charge-offs (recoveries)	Net loan charge-offs (recoveries)	(1,602		)	9,118		7,516		(1,392		)	17,747		16,355		Net loan charge-offs (recoveries)	(2,468		)	9,031		6,563		(3,860		)	26,778		22,918
Balance June 30, 2016		$	89,198		$	64,634	$	153,832	$	89,198		$	64,634	$	153,832
Balance September 30, 2016																Balance September 30, 2016	$	90,255		$	64,277	$	154,532	$	90,255		$	64,277	$	154,532

The following table shows the balance in the allowance for loan losses and the related loan balance at ~~June~~September 30, 2017 and December 31, 2016, disaggregated on the basis of impairment methodology. Impaired loans evaluated under ASC 310-10-35 include loans on non-accrual status, which are individually evaluated for impairment, and other impaired loans discussed below, which are deemed to have similar risk characteristics and are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.


	Impaired Loans				All Other Loans				Impaired Loans				All Other Loans
(In thousands)	Allowance for Loan Losses		Loans Outstanding		Allowance for Loan Losses		Loans Outstanding		Allowance for Loan Losses		Loans Outstanding		Allowance for Loan Losses		Loans Outstanding
June 30, 2017
September 30, 2017
Commercial	$	1,454	$	44,937	$	91,285	$	8,382,972	$	1,789	$	55,969	$	91,247	$	8,399,851
Personal Banking	1,433		20,221		63,660		5,178,462		1,322		23,571		63,474		5,266,101
Total	$	2,887	$	65,158	$	154,945	$	13,561,434	$	3,111	$	79,540	$	154,721	$	13,665,952
December 31, 2016
Commercial	$	1,817	$	44,795	$	89,544	$	8,166,180	$	1,817	$	44,795	$	89,544	$	8,166,180
Personal Banking	1,292		19,737		63,279		5,182,024		1,292		19,737		63,279		5,182,024
Total	$	3,109	$	64,532	$	152,823	$	13,348,204	$	3,109	$	64,532	$	152,823	$	13,348,204

Impaired loans

The table below shows the Company’s investment in impaired loans at ~~June~~September 30, 2017 and December 31, 2016. These loans consist of all loans on non-accrual status and other restructured loans whose terms have been modified and classified as troubled debt restructurings. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. They are discussed further in the "Troubled debt restructurings" section on page 14.


(In thousands)	June 30, 2017		Dec. 31, 2016		Sept. 30, 2017		Dec. 31, 2016
Non-accrual loans	$	13,362	$	14,283	$	13,640	$	14,283
Restructured loans (accruing)	51,796		50,249		65,900		50,249
Total impaired loans	$	65,158	$	64,532	$	79,540	$	64,532

The following table provides additional information about impaired loans held by the Company at ~~June~~September 30, 2017 and December 31, 2016, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided.


(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
June 30, 2017
September 30, 2017
With no related allowance recorded:
Business	$	5,566	$	9,000	$	—	$	6,196	$	9,725	$	—
Real estate – construction and land	537		752		—
Real estate – business							587		587		—
Consumer							1,023		1,047		—
	$	6,103	$	9,752	$	—	$	7,806	$	11,359	$	—
With an allowance recorded:
Business	$	29,226	$	29,821	$	914	$	35,708	$	36,219	$	1,141
Real estate – construction and land	65		68		3		1,367		1,595		37
Real estate – business	9,543		10,961		537		12,111		13,319		611
Real estate – personal	6,286		9,258		570		9,723		12,537		607
Consumer	6,242		6,280		259		5,232		5,271		52
Revolving home equity	582		582		10		578		578		5
Consumer credit card	7,111		7,111		594		7,015		7,015		658
	$	59,055	$	64,081	$	2,887	$	71,734	$	76,534	$	3,111
Total	$	65,158	$	73,833	$	2,887	$	79,540	$	87,893	$	3,111
December 31, 2016
With no related allowance recorded:
Business	$	7,375	$	10,470	$	—	$	7,375	$	10,470	$	—
Real estate – construction and land	557		752		—		557		752		—
	$	7,932	$	11,222	$	—	$	7,932	$	11,222	$	—
With an allowance recorded:
Business	$	29,924	$	31,795	$	1,318	$	29,924	$	31,795	$	1,318
Real estate – construction and land	69		72		3		69		72		3
Real estate – business	6,870		8,072		496		6,870		8,072		496
Real estate – personal	6,394		9,199		642		6,394		9,199		642
Consumer	5,281		5,281		57		5,281		5,281		57
Revolving home equity	584		584		1		584		584		1
Consumer credit card	7,478		7,478		592		7,478		7,478		592
	$	56,600	$	62,481	$	3,109	$	56,600	$	62,481	$	3,109
Total	$	64,532	$	73,703	$	3,109	$	64,532	$	73,703	$	3,109

Total average impaired loans for the three and ~~six~~nine month periods ended ~~June~~September 30, 2017 and 2016, respectively, are shown in the table below.


(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
Average Impaired Loans:
For the three months ended June 30, 2017
For the three months ended September 30, 2017
Non-accrual loans	$	9,867	$	4,539	$	14,406	$	8,938	$	4,238	$	13,176
Restructured loans (accruing)	34,765		15,780		50,545		42,930		18,691		61,621
Total	$	44,632	$	20,319	$	64,951	$	51,868	$	22,929	$	74,797
For the six months ended June 30, 2017
For the nine months ended September 30, 2017
Non-accrual loans	$	10,238	$	4,027	$	14,265	$	9,800	$	4,098	$	13,898
Restructured loans (accruing)	33,333		15,991		49,324		36,567		16,901		53,468
Total	$	43,571	$	20,018	$	63,589	$	46,367	$	20,999	$	67,366
For the three months ended June 30, 2016
For the three months ended September 30, 2016
Non-accrual loans	$	22,098	$	4,461	$	26,559	$	15,106	$	3,928	$	19,034
Restructured loans (accruing)	28,775		17,297		46,072		31,372		17,082		48,454
Total	$	50,873	$	21,758	$	72,631	$	46,478	$	21,010	$	67,488
For the six months ended June 30, 2016
For the nine months ended September 30, 2016
Non-accrual loans	$	21,551	$	4,542	$	26,093	$	19,387	$	4,336	$	23,723
Restructured loans (accruing)	27,977		17,499		45,476		29,117		17,359		46,476
Total	$	49,528	$	22,041	$	71,569	$	48,504	$	21,695	$	70,199

The table below shows interest income recognized during the three and ~~six~~nine month periods ended ~~June~~September 30, 2017 and 2016, respectively, for impaired loans held at the end of each period. This interest all relates to accruing restructured loans, as discussed in the "Troubled debt restructurings" section on page 14.


	For the Three Months Ended June 30				For the Six Months Ended June 30				For the Three Months Ended September 30				For the Nine Months Ended September 30
(In thousands)	2017		2016		2017		2016		2017		2016		2017		2016
Interest income recognized on impaired loans:
Business	$	319	$	236	$	637	$	472	$	473	$	277	$	1,418	$	830
Real estate – construction and land	1		3		2		5		10		2		30		7
Real estate – business	88		56		175		112		118		42		354		126
Real estate – personal	36		42		71		84		104		39		311		118
Consumer	80		89		159		177		79		89		236		267
Revolving home equity	6		4		12		7		7		7		20		22
Consumer credit card	145		159		289		318		162		174		486		522
Total	$	675	$	589	$	1,345	$	1,175	$	953	$	630	$	2,855	$	1,892

Delinquent and non-accrual loans

The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at ~~June~~September 30, 2017 and December 31, 2016.


(In thousands)	Current or Less Than 30 Days Past Due		30 – 89 Days Past Due		90 Days Past Due and Still Accruing		Non-accrual		Total		Current or Less Than 30 Days Past Due		30 – 89 Days Past Due		90 Days Past Due and Still Accruing		Non-accrual		Total
June 30, 2017
September 30, 2017
Commercial:
Business	$	4,842,945	$	2,761	$	372	$	6,330	$	4,852,408	$	4,823,779	$	2,630	$	807	$	6,821	$	4,834,037
Real estate – construction and land	843,289		4,319		—		544		848,152		917,128		3,913		35		533		921,609
Real estate – business	2,721,612		3,904		—		1,833		2,727,349		2,688,625		8,580		623		2,346		2,700,174
Personal Banking:
Real estate – personal	1,997,661		6,060		1,978		3,504		2,009,203		2,013,632		11,141		1,666		2,863		2,029,302
Consumer	2,012,634		22,526		2,203		1,151		2,038,514		2,082,203		27,450		2,708		1,077		2,113,438
Revolving home equity	400,306		2,154		927		—		403,387		388,346		1,530		1,432		—		391,308
Consumer credit card	722,604		9,111		9,150		—		740,865		734,215		8,971		9,193		—		752,379
Overdrafts	6,414		300		—		—		6,714		2,933		312		—		—		3,245
Total	$	13,547,465	$	51,135	$	14,630	$	13,362	$	13,626,592	$	13,650,861	$	64,527	$	16,464	$	13,640	$	13,745,492
December 31, 2016
Commercial:
Business	$	4,763,274	$	3,735	$	674	$	8,682	$	4,776,365	$	4,763,274	$	3,735	$	674	$	8,682	$	4,776,365
Real estate – construction and land	789,633		1,039		—		564		791,236		789,633		1,039		—		564		791,236
Real estate – business	2,639,586		2,154		—		1,634		2,643,374		2,639,586		2,154		—		1,634		2,643,374
Personal Banking:
Real estate – personal	1,995,724		9,162		2,108		3,403		2,010,397		1,995,724		9,162		2,108		3,403		2,010,397
Consumer	1,957,358		29,783		3,660		—		1,990,801		1,957,358		29,783		3,660		—		1,990,801
Revolving home equity	411,483		1,032		1,119		—		413,634		411,483		1,032		1,119		—		413,634
Consumer credit card	757,443		10,187		8,835		—		776,465		757,443		10,187		8,835		—		776,465
Overdrafts	10,014		450		—		—		10,464		10,014		450		—		—		10,464
Total	$	13,324,515	$	57,542	$	16,396	$	14,283	$	13,412,736	$	13,324,515	$	57,542	$	16,396	$	14,283	$	13,412,736

Credit quality

The following table provides information about the credit quality of the Commercial loan portfolio, using the Company’s internal rating system as an indicator. The internal rating system is a series of grades reflecting management’s risk assessment, based on its analysis of the borrower’s financial condition. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.

																	Commercial Loans
(In thousands)	Business		Real Estate-Construction		Real Estate- Business		Total		Business		Real Estate-Construction		Real Estate- Business		Total
June 30, 2017
September 30, 2017
Pass	$	4,617,838	$	843,151	$	2,629,544	$	8,090,533	$	4,593,958	$	915,279	$	2,586,349	$	8,095,586
Special mention	180,380		1,754		44,279		226,413		123,549		2,527		57,319		183,395
Substandard	47,860		2,703		51,693		102,256		109,709		3,270		54,160		167,139
Non-accrual	6,330		544		1,833		8,707		6,821		533		2,346		9,700
Total	$	4,852,408	$	848,152	$	2,727,349	$	8,427,909	$	4,834,037	$	921,609	$	2,700,174	$	8,455,820
December 31, 2016
Pass	$	4,607,553	$	788,778	$	2,543,348	$	7,939,679	$	4,607,553	$	788,778	$	2,543,348	$	7,939,679
Special mention	116,642		722		45,479		162,843		116,642		722		45,479		162,843
Substandard	43,488		1,172		52,913		97,573		43,488		1,172		52,913		97,573
Non-accrual	8,682		564		1,634		10,880		8,682		564		1,634		10,880
Total	$	4,776,365	$	791,236	$	2,643,374	$	8,210,975	$	4,776,365	$	791,236	$	2,643,374	$	8,210,975

The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above "Delinquent and non-accrual loans" section. In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain Personal Banking loans for which FICO scores are not obtained because they generally pertain to commercial customer activities and are often underwritten with other collateral considerations. At ~~June~~September 30, 2017, these were comprised of ~~$227.4~~$220.7 million in personal real estate loans, or ~~4.4%~~4.2% of the Personal Banking portfolio, compared to $237.2 million at December 31, 2016. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at ~~June~~September 30, 2017 and December 31, 2016 by FICO score.

																	Personal Banking Loans
	% of Loan Category								% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card		Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
June 30, 2017
September 30, 2017
FICO score:
Under 600	1.2	%	3.2	%	1.0	%	4.9	%	1.4	%	3.3	%	.9	%	5.0	%
600 - 659	2.7		5.7		1.8		14.8		2.2		5.7		2.1		15.1
660 - 719	10.6		18.5		9.5		34.8		10.1		17.1		9.0		34.9
720 - 779	26.1		26.9		21.8		25.8		24.8		26.1		21.2		25.9
780 and over	59.4		45.7		65.9		19.7		61.5		47.8		66.8		19.1
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2016
FICO score:
Under 600	1.3	%	3.4	%	1.0	%	4.9	%	1.3	%	3.4	%	1.0	%	4.9	%
600 - 659	2.6		6.4		1.8		15.5		2.6		6.4		1.8		15.5
660 - 719	10.4		19.7		9.7		34.9		10.4		19.7		9.7		34.9
720 - 779	25.4		26.3		21.1		25.1		25.4		26.3		21.1		25.1
780 and over	60.3		44.2		66.4		19.6		60.3		44.2		66.4		19.6
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Troubled debt restructurings

As mentioned previously, the Company's impaired loans include loans which have been classified as troubled debt restructurings. Total restructured loans amounted to ~~$59.2~~$73.1 million at ~~June~~September 30, 2017. Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected, and those non-accrual loans totaled ~~$7.4~~$7.2 million at ~~June~~September 30, 2017. Other performing restructured loans totaled ~~$51.8~~$65.9 million at ~~June~~September 30, 2017. These include certain business, construction and business real estate loans classified as substandard. Upon maturity, the loans renewed at interest rates judged not to be market rates for new debt with similar risk and as a result the loans were classified as troubled debt restructurings. These commercial loans totaled ~~$36.8~~$51.0 million at ~~June~~September 30, 2017. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card loans under various debt management and assistance programs, which totaled ~~$7.1~~$7.0 million at ~~June~~September 30, 2017. Modifications to credit card loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. The Company has classified additional loans as troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. At ~~June~~September 30, 2017, these loans totaled ~~$7.6~~$7.7 million in personal real estate, revolving home equity, and consumer loans. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments under the terms of the loan agreements.

The following table shows the outstanding balances of loans classified as troubled debt restructurings at ~~June~~September 30, 2017, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.


(In thousands)	June 30, 2017		Balance 90 days past due at any time during previous 12 months		September 30, 2017		Balance 90 days past due at any time during previous 12 months
Commercial:
Business	$	34,088	$	—	$	40,608	$	—
Real estate - construction and land	537		—		1,304		—
Real estate - business	7,710		—		10,353		623
Personal Banking:
Real estate - personal	3,995		353		7,996		397
Consumer	5,149		50		5,235		32
Revolving home equity	582		47		578		42
Consumer credit card	7,111		649		7,015		800
Total restructured loans	$	59,172	$	1,099	$	73,089	$	1,894

For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. No financial impact resulted from those performing loans where the debt was not reaffirmed in bankruptcy, as no changes to loan terms occurred in that process. The effects of modifications to consumer credit card loans were estimated to decrease interest income by approximately ~~$862~~$979 thousand on an annual, pre-tax basis, compared to amounts contractually owed.

The allowance for loan losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans have had no other concessions granted other than being renewed at an interest rate judged not to be market. As such, they have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors.

If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for loan losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing troubled debt

restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for loan losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begun.

The Company had commitments of ~~$3.6~~$10.6 million at ~~June~~September 30, 2017 to lend additional funds to borrowers with restructured loans.

Loans held for sale

The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 10. The loans are primarily sold to FNMA, FHLMC, and GNMA. At ~~June~~September 30, 2017, the fair value of these loans was ~~$14.1~~$11.3 million, and the unpaid principal balance was ~~$13.6~~$10.9 million.

The Company also designates student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at ~~June~~September 30, 2017 totaled ~~$7.9~~$6.0 million.

At ~~June~~September 30, 2017, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled ~~$515 thousand~~$1.1 million and $366 thousand at ~~June~~September 30, 2017 and December 31, 2016, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled ~~$2.4~~$2.7 million and $2.2 million at ~~June~~September 30, 2017 and December 31, 2016, respectively. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs.

3. Investment Securities

Investment securities, at fair value, consisted of the following at ~~June~~September 30, 2017 and December 31, 2016.


(In thousands)	June 30, 2017		December 31, 2016		Sept. 30, 2017		December 31, 2016
Available for sale	$	9,439,701	$	9,649,203	$	9,109,287	$	9,649,203
Trading	22,291		22,225		24,605		22,225
Non-marketable	102,388		99,558		99,268		99,558
Total investment securities	$	9,564,380	$	9,770,986	$	9,233,160	$	9,770,986

Most of the Company’s investment securities are classified as available for sale, and this portfolio is discussed in more detail below. The available for sale and the trading portfolios are carried at fair value. Securities which are classified as non-marketable include Federal Home Loan Bank (FHLB) stock and Federal Reserve Bank stock held for debt and regulatory purposes, which totaled ~~$47.1~~$47.3 million at ~~June~~September 30, 2017 and $46.9 million at December 31, 2016. Investment in Federal Reserve Bank stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the level of borrowings from the FHLB. These holdings are carried at cost. Non-marketable securities also include private equity investments, which amounted to ~~$55.0~~$51.7 million at ~~June~~September 30, 2017 and $52.3 million at December 31, 2016. In the absence of readily ascertainable market values, these securities are carried at estimated fair value.

A summary of the available for sale investment securities by maturity groupings as of ~~June~~September 30, 2017 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, GNMA and FDIC, in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.


(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government and federal agency obligations:
Within 1 year	$	58,665	$	58,829	$	57,511	$	58,238
After 1 but within 5 years	499,601		502,990		570,284		573,789
After 5 but within 10 years	318,318		318,212		218,912		219,468
After 10 years	35,444		32,524		69,517		67,109
Total U.S. government and federal agency obligations	912,028		912,555		916,224		918,604
Government-sponsored enterprise obligations:
Within 1 year	98,069		98,206		187,032		187,027
After 1 but within 5 years	336,302		335,723		247,444		247,141
After 10 years	12,493		12,356		35,927		35,246
Total government-sponsored enterprise obligations	446,864		446,285		470,403		469,414
State and municipal obligations:
Within 1 year	171,936		172,890		177,616		178,836
After 1 but within 5 years	643,200		654,145		659,012		671,931
After 5 but within 10 years	879,036		900,292		800,504		819,943
After 10 years	50,896		50,470		50,004		49,693
Total state and municipal obligations	1,745,068		1,777,797		1,687,136		1,720,403
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,604,217		2,620,198		2,741,329		2,756,973
Non-agency mortgage-backed securities	1,063,236		1,066,889		1,062,079		1,066,764
Asset-backed securities	2,249,399		2,250,426		1,735,004		1,736,966
Total mortgage and asset-backed securities	5,916,852		5,937,513		5,538,412		5,560,703
Other debt securities:
Within 1 year	13,387		13,389		13,388		13,393
After 1 but within 5 years	176,199		177,812		207,556		210,022
After 5 but within 10 years	125,910		126,503		133,140		133,226
Total other debt securities	315,496		317,704		354,084		356,641
Equity securities	5,463		47,847		5,353		83,522
Total available for sale investment securities	$	9,341,771	$	9,439,701	$	8,971,612	$	9,109,287

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled ~~$432.0~~$438.7 million, at fair value, at ~~June~~September 30, 2017. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index. Included in state and municipal obligations are ~~$16.8~~$16.9 million, at fair value, of auction rate securities, which were purchased from bank customers in 2008. Interest on these bonds is currently being paid at the maximum failed auction rates. Included in equity securities is common and preferred stock held by the holding company, Commerce Bancshares, Inc. (the Parent), with a fair value of ~~$47.7~~$83.4 million at ~~June~~September 30, 2017.

For securities classified as available for sale, the following table shows the unrealized gains and losses (pre-tax) in accumulated other comprehensive income, by security type.


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2017
September 30, 2017
U.S. government and federal agency obligations	$	912,028	$	5,575	$	(5,048	)	$	912,555	$	916,224	$	6,359	$	(3,979	)	$	918,604
Government-sponsored enterprise obligations	446,864		892		(1,471		)	446,285		470,403		844		(1,833		)	469,414
State and municipal obligations	1,745,068		34,717		(1,988		)	1,777,797		1,687,136		34,952		(1,685		)	1,720,403
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,604,217		29,780		(13,799		)	2,620,198		2,741,329		28,827		(13,183		)	2,756,973
Non-agency mortgage-backed securities	1,063,236		8,063		(4,410		)	1,066,889		1,062,079		8,536		(3,851		)	1,066,764
Asset-backed securities	2,249,399		5,725		(4,698		)	2,250,426		1,735,004		5,047		(3,085		)	1,736,966
Total mortgage and asset-backed securities	5,916,852		43,568		(22,907		)	5,937,513		5,538,412		42,410		(20,119		)	5,560,703
Other debt securities	315,496		2,745		(537		)	317,704		354,084		3,293		(736		)	356,641
Equity securities	5,463		42,384		—			47,847		5,353		78,169		—			83,522
Total	$	9,341,771	$	129,881	$	(31,951	)	$	9,439,701	$	8,971,612	$	166,027	$	(28,352	)	$	9,109,287
December 31, 2016
U.S. government and federal agency obligations	$	919,904	$	7,312	$	(6,312	)	$	920,904	$	919,904	$	7,312	$	(6,312	)	$	920,904
Government-sponsored enterprise obligations	450,448		1,126		(1,576		)	449,998		450,448		1,126		(1,576		)	449,998
State and municipal obligations	1,778,684		12,223		(12,693		)	1,778,214		1,778,684		12,223		(12,693		)	1,778,214
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,674,964		31,610		(20,643		)	2,685,931		2,674,964		31,610		(20,643		)	2,685,931
Non-agency mortgage-backed securities	1,054,446		7,686		(6,493		)	1,055,639		1,054,446		7,686		(6,493		)	1,055,639
Asset-backed securities	2,389,176		3,338		(11,213		)	2,381,301		2,389,176		3,338		(11,213		)	2,381,301
Total mortgage and asset-backed securities	6,118,586		42,634		(38,349		)	6,122,871		6,118,586		42,634		(38,349		)	6,122,871
Other debt securities	327,030		935		(2,012		)	325,953		327,030		935		(2,012		)	325,953
Equity securities	5,678		45,585		—			51,263		5,678		45,585		—			51,263
Total	$	9,600,330	$	109,815	$	(60,942	)	$	9,649,203	$	9,600,330	$	109,815	$	(60,942	)	$	9,649,203

The Company’s impairment policy requires a review of all securities for which fair value is less than amortized cost. Special emphasis and analysis is placed on securities whose credit rating has fallen below A3 (Moody's) or A- (Standard & Poor's), whose fair values have fallen more than 20% below purchase price for an extended period of time, or have been identified based on management’s judgment. These securities are placed on a watch list, and for all such securities, cash flow analyses are prepared. For more complex analyses, detailed cash flow models are prepared which use inputs specific to each security. Inputs to these models include factors such as cash flow received, contractual payments required, and various other information related to the underlying collateral (including current delinquencies), collateral loss severity rates (including loan to values), expected delinquency rates, credit support from other tranches, and prepayment speeds. Stress tests are performed at varying levels of delinquency rates, prepayment speeds and loss severities in order to gauge probable ranges of credit loss. At ~~June~~September 30, 2017, the fair value of securities on this watch list was ~~$68.9~~$63.6 million compared to $79.6 million at December 31, 2016.

As of ~~June~~September 30, 2017, the Company had recorded other-than-temporary impairment (OTTI) on certain non-agency mortgage-backed securities, part of the watch list mentioned above, which had an aggregate fair value of ~~$30.3~~$28.1 million. The cumulative credit-related portion of the impairment on these securities, which was recorded in earnings, totaled ~~$14.3~~$14.2 million. The Company does not intend to sell these securities and believes it is not likely that it will be required to sell the securities before the recovery of their amortized cost.

The credit-related portion of the loss on these securities was based on the cash flows projected to be received over the estimated life of the securities, discounted to present value, and compared to the current amortized cost bases of the securities. Significant inputs to the cash flow models used to calculate the credit losses on these securities at ~~June~~September 30, 2017 included the following:


Significant Inputs	Range			Range
Prepayment CPR	4%	-	25%	3%	-	25%
Projected cumulative default	14%	-	51%	13%	-	50%
Credit support	0%	-	38%	0%	-	47%
Loss severity	16%	-	63%	16%	-	63%

The following table presents a rollforward of the cumulative OTTI credit losses recognized in earnings on all available for sale debt securities.


	For the Six Months Ended June 30						For the Nine Months Ended September 30
(In thousands)	2017			2016			2017			2016
Cumulative OTTI credit losses at January 1	$	14,080		$	14,129		$	14,080		$	14,129
Credit losses on debt securities for which impairment was not previously recognized	46			—			98			—
Credit losses on debt securities for which impairment was previously recognized	274			270			274			270
Increase in expected cash flows that are recognized over remaining life of security	(146		)	(37		)	(207		)	(171		)
Cumulative OTTI credit losses at June 30	$	14,254		$	14,362
Cumulative OTTI credit losses at September 30							$	14,245		$	14,228

Securities with unrealized losses recorded in accumulated other comprehensive income are shown in the table below, along with the length of the impairment period.


	Less than 12 months				12 months or longer				Total				Less than 12 months				12 months or longer				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2017
September 30, 2017
U.S. government and federal agency obligations	$	145,884	$	5,048	$	—	$	—	$	145,884	$	5,048	$	123,071	$	3,979	$	—	$	—	$	123,071	$	3,979
Government-sponsored enterprise obligations	181,682		1,471		—		—		181,682		1,471		190,141		1,650		49,793		183		239,934		1,833
State and municipal obligations	168,613		1,365		13,761		623		182,374		1,988		95,890		692		38,026		993		133,916		1,685
Mortgage and asset-backed securities:
Agency mortgage-backed securities	959,777		13,795		1,720		4		961,497		13,799		887,047		9,741		223,550		3,442		1,110,597		13,183
Non-agency mortgage-backed securities	503,709		4,165		47,189		245		550,898		4,410		381,896		1,674		156,455		2,177		538,351		3,851
Asset-backed securities	795,526		2,606		234,619		2,092		1,030,145		4,698		488,409		522		279,402		2,563		767,811		3,085
Total mortgage and asset-backed securities	2,259,012		20,566		283,528		2,341		2,542,540		22,907		1,757,352		11,937		659,407		8,182		2,416,759		20,119
Other debt securities	65,547		500		1,463		37		67,010		537		70,143		622		9,363		114		79,506		736
Total	$	2,820,738	$	28,950	$	298,752	$	3,001	$	3,119,490	$	31,951	$	2,236,597	$	18,880	$	756,589	$	9,472	$	2,993,186	$	28,352
December 31, 2016
U.S. government and federal agency obligations	$	349,538	$	2,823	$	32,208	$	3,489	$	381,746	$	6,312	$	349,538	$	2,823	$	32,208	$	3,489	$	381,746	$	6,312
Government-sponsored enterprise obligations	190,441		1,576		—		—		190,441		1,576		190,441		1,576		—		—		190,441		1,576
State and municipal obligations	700,779		12,164		15,195		529		715,974		12,693		700,779		12,164		15,195		529		715,974		12,693
Mortgage and asset-backed securities:
Agency mortgage-backed securities	1,147,416		20,638		2,150		5		1,149,566		20,643		1,147,416		20,638		2,150		5		1,149,566		20,643
Non-agency mortgage-backed securities	688,131		6,373		34,946		120		723,077		6,493		688,131		6,373		34,946		120		723,077		6,493
Asset-backed securities	780,209		5,277		358,778		5,936		1,138,987		11,213		780,209		5,277		358,778		5,936		1,138,987		11,213
Total mortgage and asset-backed securities	2,615,756		32,288		395,874		6,061		3,011,630		38,349		2,615,756		32,288		395,874		6,061		3,011,630		38,349
Other debt securities	179,639		1,986		975		26		180,614		2,012		179,639		1,986		975		26		180,614		2,012
Total	$	4,036,153	$	50,837	$	444,252	$	10,105	$	4,480,405	$	60,942	$	4,036,153	$	50,837	$	444,252	$	10,105	$	4,480,405	$	60,942

The Company’s holdings of state and municipal obligations included gross unrealized losses of ~~$2.0~~$1.7 million at ~~June~~September 30, 2017, of which ~~$230~~$221 thousand related to auction rate securities. This portfolio totaled ~~$1.8~~$1.7 billion at fair value, or ~~18.8%~~18.9% of total available for sale securities. The average credit quality of the portfolio ~~excluding auction rate securities,~~ is Aa2 as rated by Moody’s. The portfolio is diversified in order to reduce risk, and the Company has processes and procedures in place to monitor its holdings, identify signs of financial distress and, if necessary, exit its positions in a timely manner.

The following tables present proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings.


	For the Six Months Ended June 30						For the Nine Months Ended September 30
(In thousands)	2017			2016			2017			2016
Proceeds from sales of securities:
Available for sale	$	4,972		$	—		$	367,453		$	—
Non-marketable	1,580			2,071			1,583			7,946
Total proceeds	$	6,552		$	2,071		$	369,036		$	7,946

Investment securities gains (losses), net:
Available for sale:
Losses realized on called bonds	$	(254	)	$	—		$	(254	)	$	—
Gains realized on sales							592			—
Losses realized on sales	(22		)	—			(568		)	—
Gains realized on donations	4,315			—
Gains realized on donations of securities							6,707			—
Other-than-temporary impairment recognized on debt securities	(320		)	(270		)	(372		)	(270		)
Non-marketable:
Gains realized on sales	642			2,260			645			3,717
Losses realized on sales	(652		)	—			(880		)	(502		)
Fair value adjustments, net	(2,830		)	(3,729		)	(8,028		)	(6,649		)
Total gains (losses), net	$	879		$	(1,739	)	$	(2,158	)	$	(3,704	)

At ~~June~~September 30, 2017, securities totaling ~~$3.9~~$3.7 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the Federal Reserve Bank and FHLB. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated ~~$719.8~~$667.2 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10% of stockholders’ equity.

4. Goodwill and Other Intangible Assets

The following table presents information about the Company's intangible assets which have estimable useful lives.


	June 30, 2017										December 31, 2016										September 30, 2017										December 31, 2016
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Valuation Allowance			Net Amount		Gross Carrying Amount		Accumulated Amortization			Valuation Allowance			Net Amount		Gross Carrying Amount		Accumulated Amortization			Valuation Allowance			Net Amount		Gross Carrying Amount		Accumulated Amortization			Valuation Allowance			Net Amount
Amortizable intangible assets:
Core deposit premium	$	31,270	$	(27,914	)	$	—		$	3,356	$	31,270	$	(27,429	)	$	—		$	3,841	$	31,270	$	(28,127	)	$	—		$	3,143	$	31,270	$	(27,429	)	$	—		$	3,841
Mortgage servicing rights	6,637		(2,975		)	(16		)	3,646		5,672		(2,782		)	(22		)	2,868		7,361		(3,100		)	(16		)	4,245		5,672		(2,782		)	(22		)	2,868
Total	$	37,907	$	(30,889	)	$	(16	)	$	7,002	$	36,942	$	(30,211	)	$	(22	)	$	6,709	$	38,631	$	(31,227	)	$	(16	)	$	7,388	$	36,942	$	(30,211	)	$	(22	)	$	6,709

Aggregate amortization expense on intangible assets was ~~$330~~$338 thousand and ~~$399~~$374 thousand for the three month periods ended ~~June~~September 30, 2017 and 2016, respectively, and ~~$678 thousand~~$1.0 million and ~~$794 thousand~~$1.2 million for the ~~six~~nine month periods ended ~~June~~September 30, 2017 and 2016, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of ~~June~~September 30, 2017. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions.


(In thousands)
2017	$	1,141	$	1,331
2018	1,091		1,181
2019	917		996
2020	765		834
2021	651		711

Changes in the carrying amount of goodwill and net other intangible assets for the ~~six~~nine month period ended ~~June~~September 30, 2017 is as follows:


(In thousands)	Goodwill		Core Deposit Premium			Mortgage Servicing Rights			Goodwill		Core Deposit Premium			Mortgage Servicing Rights
Balance January 1, 2017	$	138,921	$	3,841		$	2,868		$	138,921	$	3,841		$	2,868
Originations	—		—			965			—		—			1,689
Amortization	—		(485		)	(193		)	—		(698		)	(318		)
Impairment reversal	—		—			6			—		—			6
Balance June 30, 2017	$	138,921	$	3,356		$	3,646
Balance September 30, 2017									$	138,921	$	3,143		$	4,245

Goodwill allocated to the Company’s operating segments at ~~June~~September 30, 2017 and December 31, 2016 is shown below.



(In thousands)
Consumer segment	$	70,721
Commercial segment	67,454
Wealth segment	746
Total goodwill	$	138,921

5. Guarantees

The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the payment or performance obligation of a customer to a third party. While these represent a potential outlay by the Company, a significant amount of the commitments may expire without being drawn upon. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by customers, the Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities.

Upon issuance of standby letters of credit, the Company recognizes a liability for the fair value of the obligation undertaken, which is estimated to be equivalent to the amount of fees received from the customer over the life of the agreement. At ~~June~~September 30, 2017, that net liability was $2.1 million, which will be accreted into income over the remaining life of the respective commitments. The contractual amount of these letters of credit, which represents the maximum potential future payments guaranteed by the Company, was ~~$338.8~~$338.4 million at ~~June~~September 30, 2017.

The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral and at ~~June~~September 30, 2017, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 3 to 11 years. At ~~June~~September 30, 2017, the fair value of the Company's guarantee liabilities for RPAs was ~~$139~~$129 thousand, and the notional amount of the underlying swaps was ~~$75.3~~$74.9 million. The maximum potential future payment guaranteed by the Company cannot be readily estimated but is dependent upon the fair value of the interest rate swaps at the time of default.

6. Pension

The amount of net pension cost is shown in the table below:


	For the Three Months Ended June 30						For the Six Months Ended June 30						For the Three Months Ended September 30						For the Nine Months Ended September 30
(In thousands)	2017			2016			2017			2016			2017			2016			2017			2016
Service cost - benefits earned during the period	$	128		$	138		$	257		$	271		$	193		$	135		$	450		$	406
Interest cost on projected benefit obligation	973			1,005			1,946			1,972			923			986			2,869			2,958
Expected return on plan assets	(1,438		)	(1,439		)	(2,876		)	(2,876		)	(1,463		)	(1,437		)	(4,339		)	(4,313		)
Amortization of prior service cost	(68		)	(67		)	(136		)	(135		)	(67		)	(68		)	(203		)	(203		)
Amortization of unrecognized net loss	617			642			1,234			1,293			630			647			1,864			1,940
Net periodic pension cost	$	212		$	279		$	425		$	525		$	216		$	263		$	641		$	788

Substantially all benefits accrued under the Company’s defined benefit pension plan were frozen effective January 1, 2005, and the remaining benefits were frozen effective January 1, 2011. During the first ~~six~~nine months of 2017, the Company made ~~no funding contributions~~a discretionary contribution of $5.5 million to its defined benefit pension plan ~~and~~in order to reduce pension guarantee costs. The Company also made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets. The Company has no plans to make any further contributions, other than those related to the CERP, during the remainder of 2017.

7. Common Stock *

Presented below is a summary of the components used to calculate basic and diluted income per share. The Company applies the two-class method of computing income per share, as nonvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based awards and for common stock. Income per share attributable to common stock is shown in the table below. Nonvested share-based awards are further discussed in Note 12.


	For the Three Months Ended June 30				For the Six Months Ended June 30				For the Three Months Ended September 30				For the Nine Months Ended September 30
(In thousands, except per share data)	2017		2016		2017		2016		2017		2016		2017		2016
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.	$	78,960	$	69,893	$	150,464	$	135,267	$	74,564	$	68,545	$	225,028	$	203,812
Less preferred stock dividends	2,250		2,250		4,500		4,500		2,250		2,250		6,750		6,750
Net income available to common shareholders	$	76,710	$	67,643	145,964		130,767		$	72,314	$	66,295	218,278		197,062
Less income allocated to nonvested restricted stock	943		940		1,888		1,834		862		913		2,750		2,747
Net income allocated to common stock	$	75,767	$	66,703	$	144,076	$	128,933	$	71,452	$	65,382	$	215,528	$	194,315
Weighted average common shares outstanding	100,555		100,151		100,463		100,247		100,598		100,198		100,509		100,231
Basic income per common share	$	.75	$	.67	$	1.43	$	1.29	$	.71	$	.65	$	2.14	$	1.94
Diluted income per common share:
Net income available to common shareholders	$	76,710	$	67,643	$	145,964	$	130,767	$	72,314	$	66,295	$	218,278	$	197,062
Less income allocated to nonvested restricted stock	941		938		1,883		1,831		860		912		2,743		2,743
Net income allocated to common stock	$	75,769	$	66,705	$	144,081	$	128,936	$	71,454	$	65,383	$	215,535	$	194,319
Weighted average common shares outstanding	100,555		100,151		100,463		100,247		100,598		100,198		100,509		100,231
Net effect of the assumed exercise of stock-based awards - based on
the treasury stock method using the average market price for the respective periods	344		261		370		245		336		255		358		248
Weighted average diluted common shares outstanding	100,899		100,412		100,833		100,492		100,934		100,453		100,867		100,479
Diluted income per common share	$	.75	$	.66	$	1.43	$	1.28	$	.71	$	.65	$	2.14	$	1.93

Unexercised stock appreciation rights of ~~126~~139 thousand and ~~208~~89 thousand were excluded in the computation of diluted income per common share for the ~~six~~nine month periods ended ~~June~~September 30, 2017 and 2016, respectively, because their inclusion would have been anti-dilutive.

* All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December 2016.

8. Accumulated Other Comprehensive Income

The table below shows the activity and accumulated balances for components of other comprehensive income. The largest component is the unrealized holding gains and losses on available for sale securities. Unrealized gains and losses on debt securities for which an other-than-temporary impairment (OTTI) has been recorded in current earnings are shown separately below. The other component is the amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are included in current net periodic pension cost.


	Unrealized Gains (Losses) on Securities (1)						Pension Loss (2)			Total Accumulated Other Comprehensive Income			Unrealized Gains (Losses) on Securities (1)						Pension Loss (2)			Total Accumulated Other Comprehensive Income
(In thousands)	OTTI			Other									OTTI			Other
Balance January 1, 2017	$	2,975		$	27,328		$	(19,328	)	$	10,975		$	2,975		$	27,328		$	(19,328	)	$	10,975
Other comprehensive income (loss) before reclassifications	(44		)	53,072			—			53,028
Other comprehensive income before reclassifications													365			94,794			—			95,159
Amounts reclassified from accumulated other comprehensive income	320			(4,293		)	1,098			(2,875		)	372			(6,731		)	1,661			(4,698		)
Current period other comprehensive income, before tax	276			48,779			1,098			50,153			737			88,063			1,661			90,461
Income tax expense	(105		)	(18,536		)	(417		)	(19,058		)	(280		)	(33,464		)	(631		)	(34,375		)
Current period other comprehensive income, net of tax	171			30,243			681			31,095			457			54,599			1,030			56,086
Transfer of unrealized gain on securities for which impairment was not previously recognized	24			(24		)	—			—			24			(24		)	—			—
Balance June 30, 2017	$	3,170		$	57,547		$	(18,647	)	$	42,070
Balance September 30, 2017													$	3,456		$	81,903		$	(18,298	)	$	67,061
Balance January 1, 2016	$	3,316		$	49,750		$	(20,596	)	$	32,470		$	3,316		$	49,750		$	(20,596	)	$	32,470
Other comprehensive income (loss) before reclassifications	(911		)	163,925			—			163,014			(837		)	141,752			—			140,915
Amounts reclassified from accumulated other comprehensive income	270			—			1,158			1,428			270			—			1,737			2,007
Current period other comprehensive income (loss), before tax	(641		)	163,925			1,158			164,442			(567		)	141,752			1,737			142,922
Income tax (expense) benefit	243			(62,291		)	(440		)	(62,488		)	215			(53,865		)	(660		)	(54,310		)
Current period other comprehensive income (loss), net of tax	(398		)	101,634			718			101,954			(352		)	87,887			1,077			88,612
Balance June 30, 2016	$	2,918		$	151,384		$	(19,878	)	$	134,424
Balance September 30, 2016													$	2,964		$	137,637		$	(19,519	)	$	121,082

(1) The pre-tax amounts reclassified from accumulated other comprehensive income are included in "investment securities gains (losses), net" in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income are included in the computation of net periodic pension cost as "amortization of prior service cost" and "amortization of unrecognized net loss" (see Note 6), for inclusion in the consolidated statements of income.

9. Segments

The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 180 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. Residential mortgage origination, sales and servicing functions are included in this consumer segment, but residential mortgage loans retained by the Company are not considered part of this segment. The Commercial segment provides corporate lending, leasing, and international services, along with business and governmental deposit products and commercial cash management services. This segment includes both merchant and commercial bank card products. It also includes the Capital Markets Group which sells fixed income securities and provides safekeeping and accounting services to its business and correspondent bank customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various loan and deposit related services to its private banking customers.

The following table presents selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues among the three segments. Management periodically makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If appropriate, these ~~change~~changes are reflected in prior year information presented below.


(In thousands)	Consumer			Commercial			Wealth			Segment Totals			Other/Elimination			Consolidated Totals			Consumer			Commercial			Wealth			Segment Totals			Other/Elimination			Consolidated Totals
Three Months Ended June 30, 2017
Net interest income	$	69,274		$	81,718		$	11,933		$	162,925		$	19,882		$	182,807
Provision for loan losses	(10,802		)	111			24			(10,667		)	(91		)	(10,758		)
Non-interest income	34,459			49,746			38,851			123,056			28			123,084
Investment securities gains, net	—			—			—			—			1,651			1,651
Non-interest expense	(73,603		)	(74,054		)	(29,446		)	(177,103		)	(7,491		)	(184,594		)
Income before income taxes	$	19,328		$	57,521		$	21,362		$	98,211		$	13,979		$	112,190
Six Months Ended June 30, 2017
Net interest income	$	136,628		$	161,505		$	23,771		$	321,904		$	39,176		$	361,080
Provision for loan losses	(20,464		)	624			1			(19,839		)	(2,047		)	(21,886		)
Non-interest income	66,017			96,879			76,557			239,453			697			240,150
Investment securities gains, net	—			—			—			—			879			879
Non-interest expense	(145,126		)	(147,839		)	(59,795		)	(352,760		)	(18,664		)	(371,424		)
Income before income taxes	$	37,055		$	111,169		$	40,534		$	188,758		$	20,041		$	208,799
Three Months Ended June 30, 2016
Three Months Ended September 30, 2017
Net interest income	$	67,227		$	77,249		$	10,947		$	155,423		$	16,406		$	171,829		$	70,793		$	82,012		$	11,744		$	164,549		$	18,042		$	182,591
Provision for loan losses	(8,775		)	1,468			(9		)	(7,316		)	(1,900		)	(9,216		)	(11,067		)	335			(10		)	(10,742		)	38			(10,704		)
Non-interest income	33,038			48,289			36,618			117,945			(1,375		)	116,570			35,194			47,902			40,404			123,500			(1,258		)	122,242
Investment securities losses, net	—			—			—			—			(744		)	(744		)	—			—			—			—			(3,037		)	(3,037		)
Non-interest expense	(70,522		)	(70,637		)	(28,356		)	(169,515		)	(7,574		)	(177,089		)	(72,607		)	(71,468		)	(30,528		)	(174,603		)	(9,969		)	(184,572		)
Income before income taxes	$	20,968		$	56,369		$	19,200		$	96,537		$	4,813		$	101,350		$	22,313		$	58,781		$	21,610		$	102,704		$	3,816		$	106,520
Six Months Ended June 30, 2016
Nine Months Ended September 30, 2017
Net interest income	$	133,791		$	153,266		$	21,822		$	308,879		$	26,725		$	335,604		$	207,421		$	243,517		$	35,515		$	486,453		$	57,218		$	543,671
Provision for loan losses	(17,500		)	1,487			(115		)	(16,128		)	(2,527		)	(18,655		)	(31,531		)	959			(9		)	(30,581		)	(2,009		)	(32,590		)
Non-interest income	62,935			99,408			71,020			233,363			2,231			235,594			101,211			144,781			116,961			362,953			(561		)	362,392
Investment securities losses, net	—			—			—			—			(1,739		)	(1,739		)	—			—			—			—			(2,158		)	(2,158		)
Non-interest expense	(139,526		)	(140,250		)	(56,944		)	(336,720		)	(17,842		)	(354,562		)	(217,733		)	(219,307		)	(90,323		)	(527,363		)	(28,633		)	(555,996		)
Income before income taxes	$	39,700		$	113,911		$	35,783		$	189,394		$	6,848		$	196,242		$	59,368		$	169,950		$	62,144		$	291,462		$	23,857		$	315,319
Three Months Ended September 30, 2016
Net interest income																			$	67,375		$	78,514		$	10,782		$	156,671		$	14,572		$	171,243
Provision for loan losses																			(9,033		)	2,432			(5		)	(6,606		)	(657		)	(7,263		)
Non-interest income																			34,230			49,832			36,676			120,738			(1,419		)	119,319
Investment securities losses, net																			—			—			—			—			(1,965		)	(1,965		)
Non-interest expense																			(70,134		)	(71,200		)	(28,172		)	(169,506		)	(11,736		)	(181,242		)
Income before income taxes																			$	22,438		$	59,578		$	19,281		$	101,297		$	(1,205	)	$	100,092
Nine Months Ended September 30, 2016
Net interest income																			$	201,166		$	231,780		$	32,604		$	465,550		$	41,297		$	506,847
Provision for loan losses																			(26,533		)	3,919			(120		)	(22,734		)	(3,184		)	(25,918		)
Non-interest income																			97,165			149,240			107,696			354,101			812			354,913
Investment securities losses, net																			—			—			—			—			(3,704		)	(3,704		)
Non-interest expense																			(209,660		)	(211,450		)	(85,116		)	(506,226		)	(29,578		)	(535,804		)
Income before income taxes																			$	62,138		$	173,489		$	55,064		$	290,691		$	5,643		$	296,334

The information presented above was derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses. The methodologies are applied in connection with funds transfer pricing and assignment of overhead costs among segments. Funds transfer pricing was used in the determination of net interest income by assigning a standard cost (credit) for funds used (provided) by assets and liabilities based on their maturity, prepayment and/or repricing characteristics.

The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio, and the effect of certain expense allocations to the segments. The provision for loan losses in this category contains the difference between net loan charge-offs assigned directly to the segments and the recorded provision for loan loss expense. Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment.

The performance measurement of the operating segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The information is also not necessarily indicative of the segments' financial condition and results of operations if they were independent entities.

10. Derivative Instruments

The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. The Company’s derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.


(In thousands)	June 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Interest rate swaps	$	1,693,637	$	1,685,099	$	1,723,448	$	1,685,099
Interest rate caps	32,890		59,379		31,923		59,379
Credit risk participation agreements	118,081		121,514		112,348		121,514
Foreign exchange contracts	5,556		4,046		8,783		4,046
Mortgage loan commitments	29,429		12,429		23,616		12,429
Mortgage loan forward sale contracts	1,026		6,626		1,607		6,626
Forward TBA contracts	43,000		15,000		32,000		15,000
Total notional amount	$	1,923,619	$	1,904,093	$	1,933,725	$	1,904,093

The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by matching contracts purchased by the Company from other financial dealer institutions. Contracts with dealers that require central clearing are novated to a regulated clearing organization who becomes the Company's legal counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings.

Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements.

The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts to purchase or deliver foreign currencies for customers at specific future dates.

Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale commitments. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date.

The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Derivative instruments with a positive fair value (asset derivatives) are reported in other assets in the consolidated balance sheets, while derivative instruments with a negative fair value (liability derivatives) are reported in other liabilities in the consolidated balance sheets. Information about the valuation methods used to determine fair value is provided in Note 13 on Fair Value Measurements.


	Asset Derivatives				Liability Derivatives						Asset Derivatives				Liability Derivatives
	June 30, 2017		Dec. 31, 2016		June 30, 2017			Dec. 31, 2016			Sept. 30, 2017		Dec. 31, 2016		Sept. 30, 2017			Dec. 31, 2016
(In thousands)	Fair Value				Fair Value						Fair Value				Fair Value
Derivative instruments:
Interest rate swaps	$	10,887	$	12,987	$	(5,987	)	$	(12,987	)	$	10,630	$	12,987	$	(5,775	)	$	(12,987	)
Interest rate caps	34		78		(34		)	(78		)	29		78		(29		)	(78		)
Credit risk participation agreements	58		65		(139		)	(156		)	56		65		(129		)	(156		)
Foreign exchange contracts	39		66		(53		)	(4		)	68		66		(30		)	(4		)
Mortgage loan commitments	872		355		—			(6		)	757		355		—			(6		)
Mortgage loan forward sale contracts	—		—		—			(63		)	8		—		—			(63		)
Forward TBA contracts	137		15		(34		)	(45		)	102		15		(16		)	(45		)
Total	$	12,027	$	13,566	$	(6,247	)	$	(13,339	)	$	11,650	$	13,566	$	(5,979	)	$	(13,339	)

Due to rule changes by the Company's clearing counterparty effective January 2017, collateral previously recorded in "other assets" has been reclassified and offset against the fair values of cleared swaps, such that at ~~June~~September 30, 2017, the positive fair values of cleared swaps were reduced by $2.4 million and the negative fair values of cleared swaps were reduced by $7.3 million, as reflected in the table above.

The effects of derivative instruments on the consolidated statements of income are shown in the table below.


	Location of Gain or (Loss) Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives												Location of Gain or (Loss) Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
		For the Three Months Ended June 30						For the Six Months Ended June 30							For the Three Months Ended September 30						For the Nine Months Ended September 30
(In thousands)		2017			2016			2017			2016				2017			2016			2017			2016
Derivative instruments:
Interest rate swaps	Other non-interest income	$	456		$	769		$	599		$	2,995		Other non-interest income	$	702		$	203		$	1,301		$	3,198
Credit risk participation agreements	Other non-interest income	1			(23		)	11			(58		)	Other non-interest income	7			50			18			(8		)
Foreign exchange contracts	Other non-interest income	(55		)	57			(75		)	8			Other non-interest income	51			(20		)	(24		)	(12		)
Mortgage loan commitments	Loan fees and sales	(32		)	19			522			527			Loan fees and sales	(114		)	86			408			613
Mortgage loan forward sale contracts	Loan fees and sales	(4		)	1			62			—			Loan fees and sales	8			1			70			1
Forward TBA contracts	Loan fees and sales	(160		)	(397		)	(258		)	(726		)	Loan fees and sales	(322		)	(172		)	(580		)	(898		)
Total		$	206		$	426		$	861		$	2,746			$	332		$	148		$	1,193		$	2,894

The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

The Company is party to master netting arrangements with most of its swap derivative counterparties; however, the Company does not offset derivative assets and liabilities under these arrangements on its consolidated balance sheet. Collateral, usually in the form of marketable securities, is exchanged between the Company and dealer bank counterparties and is generally subject to thresholds and transfer minimums. By contract, it may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash and securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below.


							Gross Amounts Not Offset in the Balance Sheet														Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset			Collateral Received/Pledged			Net Amount		Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset			Collateral Received/Pledged			Net Amount
June 30, 2017
September 30, 2017
Assets:
Derivatives subject to master netting agreements	$	11,088	$	—	$	11,088	$	(514	)	$	—		$	10,574	$	10,809	$	—	$	10,809	$	(364	)	$	—		$	10,445
Derivatives not subject to master netting agreements	939		—		939										841		—		841
Total derivatives	12,027		—		12,027										11,650		—		11,650
Liabilities:
Derivatives subject to master netting agreements	$	6,066	$	—	$	6,066	$	(514	)	$	(1,710	)	$	3,842	$	5,829	$	—	$	5,829	$	(364	)	$	(1,692	)	$	3,773
Derivatives not subject to master netting agreements	181		—		181										150		—		150
Total derivatives	6,247		—		6,247										5,979		—		5,979
December 31, 2016
Assets:
Derivatives subject to master netting agreements	$	13,111	$	—	$	13,111	$	(3,391	)	$	—		$	9,720	$	13,111	$	—	$	13,111	$	(3,391	)	$	—		$	9,720
Derivatives not subject to master netting agreements	455		—		455										455		—		455
Total derivatives	13,566		—		13,566										13,566		—		13,566
Liabilities:
Derivatives subject to master netting agreements	$	13,124	$	—	$	13,124	$	(3,391	)	$	(5,292	)	$	4,441	$	13,124	$	—	$	13,124	$	(3,391	)	$	(5,292	)	$	4,441
Derivatives not subject to master netting agreements	215		—		215										215		—		215
Total derivatives	13,339		—		13,339										13,339		—		13,339

11. Resale and Repurchase Agreements

The following table shows the extent to which assets and liabilities relating to securities purchased under agreements to resell (resale agreements) and securities sold under agreements to repurchase (repurchase agreements) have been offset in the consolidated balance sheets, in addition to the extent to which they could potentially be offset. Also shown is collateral received or pledged, which consists of marketable securities. The collateral amounts in the table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus amounts of excess collateral are not shown. The agreements in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the same or similar securities. They are accounted for as collateralized financing transactions, not as sales and purchases of the securities portfolio. The securities collateral accepted or pledged in resale and repurchase agreements with other financial institutions also may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees. The Company generally retains custody of securities pledged for repurchase agreements with customers.

The Company is party to several agreements commonly known as collateral swaps. These agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The collateral swaps totaled ~~$700.0~~$650.0 million at ~~June~~September 30, 2017 and $550.0 million at December 31, 2016. At ~~June~~September 30, 2017, the Company had posted collateral of ~~$718.1~~$665.5 million in marketable securities, consisting of agency mortgage-backed bonds and treasuries, and had accepted ~~$724.4~~$663.1 million in investment grade asset-backed, commercial mortgage-backed, and corporate bonds.


								Gross Amounts Not Offset in the Balance Sheet														Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset		Securities Collateral Received/Pledged			Net Amount		Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset		Securities Collateral Received/Pledged			Net Amount
June 30, 2017
September 30, 2017
Total resale agreements, subject to master netting arrangements	$	1,325,000	$	(700,000	)	$	625,000	$	—	$	(625,000	)	$	—	$	1,350,000	$	(650,000	)	$	700,000	$	—	$	(700,000	)	$	—
Total repurchase agreements, subject to master netting arrangements	1,702,934		(700,000		)	1,002,934		—		(1,002,934		)	—		1,708,074		(650,000		)	1,058,074		—		(1,058,074		)	—
December 31, 2016
Total resale agreements, subject to master netting arrangements	$	1,275,000	$	(550,000	)	$	725,000	$	—	$	(725,000	)	$	—	$	1,275,000	$	(550,000	)	$	725,000	$	—	$	(725,000	)	$	—
Total repurchase agreements, subject to master netting arrangements	2,221,065		(550,000		)	1,671,065		—		(1,671,065		)	—		2,221,065		(550,000		)	1,671,065		—		(1,671,065		)	—

The table below shows the remaining contractual maturities of repurchase agreements outstanding at ~~June~~September 30, 2017 and December 31, 2016, in addition to the various types of marketable securities that have been pledged as collateral for these borrowings.


	Remaining Contractual Maturity of the Agreements								Remaining Contractual Maturity of the Agreements
(In thousands)	Overnight and continuous		Up to 90 days		Greater than 90 days		Total		Overnight and continuous		Up to 90 days		Greater than 90 days		Total
June 30, 2017
September 30, 2017
Repurchase agreements, secured by:
U.S. government and federal agency obligations	$	330,173	$	1,728	$	450,000	$	781,901	$	326,080	$	—	$	450,000	$	776,080
Government-sponsored enterprise obligations	180,496		—		—		180,496		186,896		—		—		186,896
Agency mortgage-backed securities	379,441		70,325		200,000		649,766		317,780		19,730		200,000		537,510
Asset-backed securities	10,771		80,000		—		90,771		117,588		90,000		—		207,588
Total repurchase agreements, gross amount recognized	$	900,881	$	152,053	$	650,000	$	1,702,934	$	948,344	$	109,730	$	650,000	$	1,708,074
December 31, 2016
Repurchase agreements, secured by:
U.S. government and federal agency obligations	$	294,600	$	—	$	300,000	$	594,600	$	294,600	$	—	$	300,000	$	594,600
Government-sponsored enterprise obligations	147,694		—		3,237		150,931		147,694		—		3,237		150,931
Agency mortgage-backed securities	693,851		24,380		252,473		970,704		693,851		24,380		252,473		970,704
Asset-backed securities	474,830		30,000		—		504,830		474,830		30,000		—		504,830
Total repurchase agreements, gross amount recognized	$	1,610,975	$	54,380	$	555,710	$	2,221,065	$	1,610,975	$	54,380	$	555,710	$	2,221,065

12. Stock-Based Compensation

The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights (SARs). Most of the awards are issued during the first quarter of each year. The stock-based compensation expense that has been charged against income was ~~$3.1~~$3.0 million and ~~$2.9~~$2.6 million in the three months ended ~~June~~September 30, 2017 and 2016, respectively, and ~~$6.2~~$9.1 million and ~~$6.3~~$8.9 million in the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, respectively.

The Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," on January 1, 2017. The Company elected to change its method of accounting for forfeitures, as allowed by this guidance. In 2016 and prior years, accruals of compensation cost were reduced by an estimate of awards not expected to vest and further adjusted when actual forfeitures occurred. In 2017 and subsequent years, forfeitures will be accounted for when they occur and recognized in

compensation cost at that time. The effect of this change, which was recognized as a cumulative-effect adjustment on January 1, 2017, increased equity and increased deferred tax assets by approximately $1.3 million. ASU 2016-09 also changed the classification of excess tax benefits and deficiencies arising from stock-based payment transactions, resulting in reductions in income tax expense of $4.5 million in the first quarter of 2017, ~~and~~ $1.6 million in the second quarter of 2017 and $619 thousand in the third quarter of 2017.

Nonvested stock awards generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of ~~June~~September 30, 2017, and changes during the ~~six~~nine month period then ended, is presented below.


	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2017	1,392,451		$34.67	1,392,451		$34.67
Granted	233,520		57.32	242,244		57.31
Vested	(394,130	)	30.79	(403,586	)	30.87
Forfeited	(9,388	)	38.78	(20,250	)	40.72
Nonvested at June 30, 2017	1,222,453		$40.22
Nonvested at September 30, 2017				1,210,859		$40.36

SARs are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs vest ratably over 4 years of continuous service and have 10-year contractual terms. All SARs must be settled in stock under provisions of the plan. In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The current year per share average fair value and the model assumptions are shown in the table below.



Weighted per share average fair value at grant date		$12.54
Assumptions:
Dividend yield	1.6		%
Volatility	21.1		%
Risk-free interest rate	2.4		%
Expected term	7.0 years

A summary of SAR activity during the first ~~six~~nine months of 2017 is presented below.


(Dollars in thousands, except per share data)	Rights		Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value		Rights		Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2017	1,324,954		$34.53				1,324,954		$34.53
Granted	165,592		57.53				165,592		57.53
Forfeited	(4,182	)	42.82				(9,448	)	44.25
Expired	(797	)	36.22				(837	)	36.48
Exercised	(263,503	)	30.58				(317,621	)	30.86
Outstanding at June 30, 2017	1,222,064		$38.47	6.5 years	$	22,583
Outstanding at September 30, 2017							1,162,640		$38.73	6.3 years	$	21,821

13. Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale and trading securities, certain non-marketable securities relating to private equity activities, and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting or write-downs of individual assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.

The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Company's 2016 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then, except for a change in the valuation of cleared interest rate swaps as discussed in Note 10.

Instruments Measured at Fair Value on a Recurring Basis

The table below presents the ~~June~~September 30, 2017 and December 31, 2016 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first ~~six~~nine months of 2017 or the year ended December 31, 2016.


			Fair Value Measurements Using								Fair Value Measurements Using
(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
September 30, 2017
Assets:
Residential mortgage loans held for sale	$	14,118	$	—	$	14,118	$	—	$	11,320	$	—	$	11,320	$	—
Available for sale securities:
U.S. government and federal agency obligations	912,555		912,555		—		—		918,604		918,604		—		—
Government-sponsored enterprise obligations	446,285		—		446,285		—		469,414		—		469,414		—
State and municipal obligations	1,777,797		—		1,760,972		16,825		1,720,403		—		1,703,550		16,853
Agency mortgage-backed securities	2,620,198		—		2,620,198		—		2,756,973		—		2,756,973		—
Non-agency mortgage-backed securities	1,066,889		—		1,066,889		—		1,066,764		—		1,066,764		—
Asset-backed securities	2,250,426		—		2,250,426		—		1,736,966		—		1,736,966		—
Other debt securities	317,704		—		317,704		—		356,641		—		356,641		—
Equity securities	47,847		21,156		26,691		—		83,522		32,915		50,607		—
Trading securities	22,291		—		22,291		—		24,605		—		24,605		—
Private equity investments	53,557		—		—		53,557		50,254		—		—		50,254
Derivatives *	12,027		—		11,097		930		11,650		—		10,837		813
Assets held in trust for deferred compensation plan	11,893		11,893		—		—		12,311		12,311		—		—
Total assets	9,553,587		945,604		8,536,671		71,312		9,219,427		963,830		8,187,677		67,920
Liabilities:
Derivatives *	6,247		—		6,108		139		5,979		—		5,850		129
Liabilities held in trust for deferred compensation plan	11,893		11,893		—		—		12,311		12,311		—		—
Total liabilities	$	18,140	$	11,893	$	6,108	$	139	$	18,290	$	12,311	$	5,850	$	129
December 31, 2016
Assets:
Residential mortgage loans held for sale	$	9,263	$	—	$	9,263	$	—	$	9,263	$	—	$	9,263	$	—
Available for sale securities:
U.S. government and federal agency obligations	920,904		920,904		—		—		920,904		920,904		—		—
Government-sponsored enterprise obligations	449,998		—		449,998		—		449,998		—		449,998		—
State and municipal obligations	1,778,214		—		1,761,532		16,682		1,778,214		—		1,761,532		16,682
Agency mortgage-backed securities	2,685,931		—		2,685,931		—		2,685,931		—		2,685,931		—
Non-agency mortgage-backed securities	1,055,639		—		1,055,639		—		1,055,639		—		1,055,639		—
Asset-backed securities	2,381,301		—		2,381,301		—		2,381,301		—		2,381,301		—
Other debt securities	325,953		—		325,953		—		325,953		—		325,953		—
Equity securities	51,263		24,967		26,296		—		51,263		24,967		26,296		—
Trading securities	22,225		—		22,225		—		22,225		—		22,225		—
Private equity investments	50,820		—		—		50,820		50,820		—		—		50,820
Derivatives *	13,566		—		13,146		420		13,566		—		13,146		420
Assets held in trust for deferred compensation plan	10,261		10,261		—		—		10,261		10,261		—		—
Total assets	9,755,338		956,132		8,731,284		67,922		9,755,338		956,132		8,731,284		67,922
Liabilities:
Derivatives *	13,339		—		13,177		162		13,339		—		13,177		162
Liabilities held in trust for deferred compensation plan	10,261		10,261		—		—		10,261		10,261		—		—
Total liabilities	$	23,600	$	10,261	$	13,177	$	162	$	23,600	$	10,261	$	13,177	$	162

* The fair value of each class of derivative is shown in Note 10.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)												Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In thousands)	State and Municipal Obligations			Private Equity Investments			Derivatives			Total			State and Municipal Obligations			Private Equity Investments			Derivatives			Total
For the three months ended June 30, 2017
Balance March 31, 2017	$	17,083		$	52,800		$	822		$	70,705
For the three months ended September 30, 2017
Balance June 30, 2017													$	16,825		$	53,557		$	791		$	71,173
Total gains or losses (realized/unrealized):
Included in earnings	—			48			(31		)	17			—			(5,198		)	(107		)	(5,305		)
Included in other comprehensive income *	319			—			—			319			19			—			—			19
Investment securities called	(600		)	—			—			(600		)
Discount accretion	23			—			—			23			9			—			—			9
Purchases of private equity investments	—			2,259			—			2,259			—			2,185			—			2,185
Sale/pay down of private equity investments	—			(1,550		)	—			(1,550		)	—			(290		)	—			(290		)
Balance June 30, 2017	$	16,825		$	53,557		$	791		$	71,173
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2017	$	—		$	48		$	872		$	920
For the six months ended June 30, 2017
Balance September 30, 2017													$	16,853		$	50,254		$	684		$	67,791
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2017													$	—		$	(5,198	)	$	764		$	(4,434	)
For the nine months ended September 30, 2017
Balance January 1, 2017	$	16,682		$	50,820		$	258		$	67,760		$	16,682		$	50,820		$	258		$	67,760
Total gains or losses (realized/unrealized):
Included in earnings	—			(2,830		)	533			(2,297		)	—			(8,028		)	426			(7,602		)
Included in other comprehensive income *	710			—			—			710			729			—			—			729
Investment securities called	(600		)	—			—			(600		)	(600		)	—			—			(600		)
Discount accretion	33			—			—			33			42			—			—			42
Purchases of private equity investments	—			7,084			—			7,084			—			9,269			—			9,269
Sale/pay down of private equity investments	—			(1,550		)	—			(1,550		)	—			(1,840		)	—			(1,840		)
Capitalized interest/dividends	—			33			—			33			—			33			—			33
Balance June 30, 2017	$	16,825		$	53,557		$	791		$	71,173
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2017	$	—		$	(2,655	)	$	882		$	(1,773	)
For the three months ended June 30, 2016
Balance March 31, 2016	$	17,209		$	67,432		$	506		$	85,147
Balance September 30, 2017													$	16,853		$	50,254		$	684		$	67,791
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2017													$	—		$	(7,853	)	$	775		$	(7,078	)
For the three months ended September 30, 2016
Balance June 30, 2016													$	17,679		$	62,813		$	502		$	80,994
Total gains or losses (realized/unrealized):
Included in earnings	—			(2,810		)	(4		)	(2,814		)	—			(2,921		)	136			(2,785		)
Included in other comprehensive income *	401			—			—			401			317			—			—			317
Investment securities called													(1,100		)	—			—			(1,100		)
Discount accretion	69			—			—			69			12			—			—			12
Purchases of private equity investments	—			575			—			575			—			2,894			—			2,894
Sale/pay down of private equity investments	—			(2,398		)	—			(2,398		)	—			(3,315		)	—			(3,315		)
Capitalized interest/dividends	—			14			—			14			—			15			—			15
Balance June 30, 2016	$	17,679		$	62,813		$	502		$	80,994
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2016	$	—		$	(2,810	)	$	767		$	(2,043	)
For the six months ended June 30, 2016
Sale of risk participation agreement													—			—			(33		)	(33		)
Balance September 30, 2016													$	16,908		$	59,486		$	605		$	76,999
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2016													$	—		$	(2,921	)	$	926		$	(1,995	)
For the nine months ended September 30, 2016
Balance January 1, 2016	$	17,195		$	63,032		$	69		$	80,296		$	17,195		$	63,032		$	69		$	80,296
Total gains or losses (realized/unrealized):
Included in earnings	—			(3,724		)	469			(3,255		)	—			(6,645		)	605			(6,040		)
Included in other comprehensive income *	502			—			—			502			819			—			—			819
Investment securities called	(100		)	—			—			(100		)	(1,200		)	—			—			(1,200		)
Discount accretion	82			—			—			82			94			—			—			94
Purchases of private equity investments	—			5,841			—			5,841			—			8,735			—			8,735
Sale/pay down of private equity investments	—			(2,398		)	—			(2,398		)	—			(5,713		)	—			(5,713		)
Capitalized interest/dividends	—			62			—			62			—			77			—			77
Sale of risk participation agreement	—			—			(36		)	(36		)	—			—			(69		)	(69		)
Balance June 30, 2016	$	17,679		$	62,813		$	502		$	80,994
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2016	$	—		$	(3,724	)	$	732		$	(2,992	)
Balance September 30, 2016													$	16,908		$	59,486		$	605		$	76,999
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2016													$	—		$	(6,545	)	$	868		$	(5,677	)

* Included in "net unrealized gains (losses) on other securities" in the consolidated statements of comprehensive income.

Gains and losses included in earnings for the Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income:

(In thousands) Loan Fees and Sales Other Non-Interest Income Investment Securities Gains (Losses), Net Total
For the three months ended June 30, 2017
Total gains or losses included in earnings $ (32 ) $ 1
$ 48
$ 17
Change in unrealized gains or losses relating to assets still held at June 30, 2017 $ 871
$ 1
$ 48
$ 920
For the six months ended June 30, 2017
Total gains or losses included in earnings $ 522
$ 11
$ (2,830 ) $ (2,297 )
Change in unrealized gains or losses relating to assets still held at June 30, 2017 $ 871
$ 11
$ (2,655 ) $ (1,773 )
For the three months ended June 30, 2016
Total gains or losses included in earnings $ 19
$ (23 ) $ (2,810 ) $ (2,814 )
Change in unrealized gains or losses relating to assets still held at June 30, 2016 $ 790
$ (23 ) $ (2,810 ) $ (2,043 )
For the six months ended June 30, 2016
Total gains or losses included in earnings $ 527
$ (58 ) $ (3,724 ) $ (3,255 )
Change in unrealized gains or losses relating to assets still held at June 30, 2016 $ 790
$ (58 ) $ (3,724 ) $ (2,992 )



(In thousands)	Loan Fees and Sales			Other Non-Interest Income			Investment Securities Gains (Losses), Net			Total
For the three months ended September 30, 2017
Total gains or losses included in earnings	$	(115	)	$	8		$	(5,198	)	$	(5,305	)
Change in unrealized gains or losses relating to assets still held at September 30, 2017	$	756		$	8		$	(5,198	)	$	(4,434	)
For the nine months ended September 30, 2017
Total gains or losses included in earnings	$	407		$	19		$	(8,028	)	$	(7,602	)
Change in unrealized gains or losses relating to assets still held at September 30, 2017	$	756		$	19		$	(7,853	)	$	(7,078	)
For the three months ended September 30, 2016
Total gains or losses included in earnings	$	86		$	50		$	(2,921	)	$	(2,785	)
Change in unrealized gains or losses relating to assets still held at September 30, 2016	$	876		$	50		$	(2,921	)	$	(1,995	)
For the nine months ended September 30, 2016
Total gains or losses included in earnings	$	613		$	(8	)	$	(6,645	)	$	(6,040	)
Change in unrealized gains or losses relating to assets still held at September 30, 2016	$	876		$	(8	)	$	(6,545	)	$	(5,677	)

Level 3 Inputs

The Company's significant Level 3 measurements which employ unobservable inputs that are readily quantifiable pertain to auction rate securities (ARS) held by the Bank, investments in portfolio concerns held by the Company's private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal securities and totaled ~~$16.8~~$16.9 million at ~~June~~September 30, 2017, while private equity investments, included in non-marketable securities, totaled ~~$53.6~~$50.3 million.

Information about these inputs is presented in the table and discussions below.


Quantitative Information about Level 3 Fair Value Measurements	Quantitative Information about Level 3 Fair Value Measurements					Weighted	Quantitative Information about Level 3 Fair Value Measurements					Weighted
	Valuation Technique	Unobservable Input	Range			Average	Valuation Technique	Unobservable Input	Range			Average
Auction rate securities	Discounted cash flow	Estimated market recovery period			5 years		Discounted cash flow	Estimated market recovery period			5 years
		Estimated market rate	2.8%	-	3.1%			Estimated market rate	2.8%	-	3.1%
Private equity investments	Market comparable companies	EBITDA multiple	4.0	-	5.8		Market comparable companies	EBITDA multiple	4.0	-	5.8
Mortgage loan commitments	Discounted cash flow	Probability of funding	53.0%	-	99.3%	80.2%	Discounted cash flow	Probability of funding	50.9%	-	100.0%	79.1%
		Embedded servicing value	(.2)%	-	2.2%	1.0%		Embedded servicing value	(.3)%	-	2.2%	1.1%

Instruments Measured at Fair Value on a Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis during the first ~~six~~nine months of 2017 and 2016, and still held as of ~~June~~September 30, 2017 and 2016, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at ~~June~~September 30, 2017 and 2016.


			Fair Value Measurements Using											Fair Value Measurements Using
(In thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses) Recognized During the Six Months Ended June 30			Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses) Recognized During the Nine Months Ended September 30
June 30, 2017
September 30, 2017
Collateral dependent impaired loans	$	2,044	$	—	$	—	$	2,044	$	(550	)	$	1,468	$	—	$	—	$	1,468	$	(336	)
Mortgage servicing rights	3,646		—		—		3,646		6			4,245		—		—		4,245		6
Foreclosed assets	75		—		—		75		(58		)	50		—		—		50		(83		)
Long-lived assets	1,834		—		—		1,834		(343		)	3,033		—		—		3,033		(1,167		)

June 30, 2016
September 30, 2016
Collateral dependent impaired loans	$	5,001	$	—	$	—	$	5,001	$	(1,491	)	$	1,756	$	—	$	—	$	1,756	$	(1,626	)
Mortgage servicing rights	2,191		—		—		2,191		(2		)	2,533		—		—		2,533		(7		)
Foreclosed assets	28		—		—		28		(10		)	47		—		—		47		(66		)
Long-lived assets	1,871		—		—		1,871		(956		)	2,232		—		—		2,232		(1,001		)

14. Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for many of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The methods and inputs used in the estimation of fair value for the financial instruments in the table below are discussed in the Fair Value Measurements and the Fair Value of Financial Instruments notes in the Company's 2016 Annual Report on Form 10-K. There have been no significant changes in these methods and inputs since December 31, 2016, except as mentioned in Note 10 on Derivatives.

The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows:


	Fair Value Hierarchy Level	June 30, 2017				December 31, 2016				Fair Value Hierarchy Level	September 30, 2017				December 31, 2016
(In thousands)		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets
Loans:
Business	Level 3	$	4,852,408	$	4,866,125	$	4,776,365	$	4,787,469	Level 3	$	4,834,037	$	4,848,169	$	4,776,365	$	4,787,469
Real estate - construction and land	Level 3	848,152		859,171		791,236		800,426		Level 3	921,609		933,862		791,236		800,426
Real estate - business	Level 3	2,727,349		2,740,841		2,643,374		2,658,093		Level 3	2,700,174		2,712,002		2,643,374		2,658,093
Real estate - personal	Level 3	2,009,203		2,022,671		2,010,397		2,005,227		Level 3	2,029,302		2,034,374		2,010,397		2,005,227
Consumer	Level 3	2,038,514		2,021,537		1,990,801		1,974,784		Level 3	2,113,438		2,088,302		1,990,801		1,974,784
Revolving home equity	Level 3	403,387		404,177		413,634		414,499		Level 3	391,308		391,419		413,634		414,499
Consumer credit card	Level 3	740,865		754,763		776,465		794,856		Level 3	752,379		767,344		776,465		794,856
Overdrafts	Level 3	6,714		6,714		10,464		10,464		Level 3	3,245		3,245		10,464		10,464
Loans held for sale	Level 2	22,002		22,002		14,456		14,456		Level 2	17,337		17,337		14,456		14,456
Investment securities:
Available for sale	Level 1	933,711		933,711		945,871		945,871		Level 1	951,519		951,519		945,871		945,871
Available for sale	Level 2	8,489,165		8,489,165		8,686,650		8,686,650		Level 2	8,140,915		8,140,915		8,686,650		8,686,650
Available for sale	Level 3	16,825		16,825		16,682		16,682		Level 3	16,853		16,853		16,682		16,682
Trading	Level 2	22,291		22,291		22,225		22,225		Level 2	24,605		24,605		22,225		22,225
Non-marketable	Level 3	102,388		102,388		99,558		99,558		Level 3	99,268		99,268		99,558		99,558
Federal funds sold	Level 1	16,520		16,520		15,470		15,470		Level 1	32,630		32,630		15,470		15,470
Securities purchased under agreements to resell	Level 3	625,000		628,148		725,000		728,179		Level 3	700,000		702,989		725,000		728,179
Interest earning deposits with banks	Level 1	80,860		80,860		272,275		272,275		Level 1	105,422		105,422		272,275		272,275
Cash and due from banks	Level 1	433,747		433,747		494,690		494,690		Level 1	461,724		461,724		494,690		494,690
Derivative instruments	Level 2	11,097		11,097		13,146		13,146		Level 2	10,837		10,837		13,146		13,146
Derivative instruments	Level 3	930		930		420		420		Level 3	813		813		420		420
Assets held in trust for deferred compensation plan	Level 1	11,893		11,893		10,261		10,261		Level 1	12,311		12,311		10,261		10,261
Financial Liabilities
Non-interest bearing deposits	Level 1	$	7,314,506	$	7,314,506	$	7,429,398	$	7,429,398	Level 1	$	7,536,127	$	7,536,127	$	7,429,398	$	7,429,398
Savings, interest checking and money market deposits	Level 1	11,427,615		11,427,615		11,430,789				Level 1	11,091,200		11,091,200		11,430,789
Time open and certificates of deposit	Level 3	2,083,541		2,075,563		2,240,908		2,235,218		Level 3	1,816,446		1,820,178		2,240,908		2,235,218
Federal funds purchased	Level 1	253,510		253,510		52,840		52,840		Level 1	350,910		350,910		52,840		52,840
Securities sold under agreements to repurchase	Level 3	1,002,934		1,003,183		1,671,065		1,671,227		Level 3	1,058,074		1,058,459		1,671,065		1,671,227
Other borrowings	Level 3	101,903		102,907		102,049		104,298		Level 3	102,553		103,012		102,049		104,298
Derivative instruments	Level 2	6,108		6,108		13,177		13,177		Level 2	5,850		5,850		13,177		13,177
Derivative instruments	Level 3	139		139		162		162		Level 3	129		129		162		162
Liabilities held in trust for deferred compensation plan	Level 1	11,893		11,893		10,261		10,261		Level 1	12,311		12,311		10,261		10,261

15. Legal and Regulatory Proceedings

On August 15, 2014, a customer filed a class action complaint against ~~the~~Commerce Bank in the Circuit Court, Jackson County, Missouri. The case is Cassandra Warren, et al v. Commerce Bank (Case No. 1416-CV19197). In the case, the customer ~~alleges~~alleged violation of the Missouri usury ~~statute~~statue in connection with ~~the~~Commerce Bank charging overdraft fees in connection with point-of-sale/debit and automated-teller machine cards. On August 31, 2017, the Court ruled in favor of Commerce Bank on its motion for summary judgment. The ~~class was certified and consists of Missouri customers of~~time period for any appeal on the ~~Bank who may have been similarly affected. The~~summary judgment ruling has run with no appeal filed; accordingly, the case has been stayed pending the final outcome of a similar case in which a ruling has been made in favor of the bank defendant. The Company believes that the stay will remain in effect until any appeals in the similar case have run their course. The Company believes the Warren complaint lacks merit and will defend itself vigorously. The amount of any ultimate exposure cannot be determinedconcluded with ~~certainty at this time.~~

~~The Company has been in ongoing discussions with the U.S. Department of Labor concerning an investigation involving ERISA regulations related~~no liability to ~~a managed trust account. The investigation concluded in a non-material settlement between the Company and the U.S. Department of Labor during July 2017.~~

Commerce Bank.

The Company has various other legal proceedings pending at ~~June~~September 30, 2017, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at very early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2016 Annual Report on Form 10-K. Results of operations for the three and ~~six~~nine month periods ended ~~June~~September 30, 2017 are not necessarily indicative of results to be attained for any other period.

Forward-Looking Information

This report may contain "forward-looking statements" that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of the Company. This could cause results or performance to differ materially from those expressed in the forward-looking statements. Words such as "expects", "anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events or factors include: changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2016 Annual Report on Form 10-K.

Critical Accounting Policies

The Company has identified several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for loan losses, the valuation of certain investment securities, and accounting for income taxes. A discussion of these policies can be found in the sections captioned "Critical Accounting Policies" and "Allowance for Loan Losses" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2016 Annual Report on Form 10-K. There have been no changes in the Company's application of critical accounting policies since December 31, 2016.

Selected Financial Data


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended September 30						Nine Months Ended September 30
	2017			2016			2017			2016			2017			2016			2017			2016
Per Share Data
Net income per common share — basic	$	.75		$	.67	*	$	1.43		$	1.29	*	$	.71		$	.65	*	$	2.14		$	1.94	*
Net income per common share — diluted	.75			.66		*	1.43			1.28		*	.71			.65		*	2.14			1.93		*
Cash dividends on common stock	.225			.214		*	.450			.429		*	.225			.214		*	.675			.643		*
Book value per common share							24.44			23.49		*							25.19			23.82		*
Market price							56.83			45.62		*							57.77			46.91		*
Selected Ratios
(Based on average balance sheets)
Loans to deposits ⁽¹⁾	65.25		%	63.45		%	64.82		%	63.13		%	66.96		%	64.33		%	65.53		%	63.53		%
Non-interest bearing deposits to total deposits	34.03			33.83			34.25			34.13			35.07			35.02			34.52			34.43
Equity to loans ⁽¹⁾	19.26			19.15			19.00			19.15			19.61			19.56			19.21			19.29
Equity to deposits	12.57			12.15			12.32			12.09			13.13			12.58			12.59			12.26
Equity to total assets	10.42			10.13			10.23			9.99			10.74			10.46			10.40			10.15
Return on total assets	1.26			1.15			1.21			1.11			1.19			1.12			1.20			1.11
Return on common equity	12.48			11.69			12.12			11.44			11.35			10.97			11.85			11.28
(Based on end-of-period data)
Non-interest income to revenue ⁽²⁾	40.24			40.42			39.94			41.25			40.10			41.06			40.00			41.18
Efficiency ratio ⁽³⁾	60.24			61.27			61.67			61.93			60.44			62.25			61.25			62.04
Tier I common risk-based capital ratio							12.28			11.50									12.52			11.66
Tier I risk-based capital ratio							13.05			12.29									13.28			12.44
Total risk-based capital ratio							14.00			13.23									14.32			13.39
Tangible common equity to tangible assets ratio ⁽⁴⁾							9.37			9.09									9.72			9.22
Tier I leverage ratio							9.87			9.36									10.16			9.58

* Restated for the 5% stock dividend distributed in December 2016.

(1) Includes loans held for sale.

(2) Revenue includes net interest income and non-interest income.

(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(4) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization. It provides a meaningful basis for period to period and company to company comparisons, and also assists regulators, investors and analysts in analyzing the financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or superior to, data prepared in accordance with GAAP.

The following table is a reconciliation of the GAAP financial measures of total equity and total assets to the non-GAAP measures of total tangible common equity and total tangible assets.


	June 30						September 30
(Dollars in thousands)	2017			2016			2017			2016
Total equity	$	2,628,207		$	2,526,821		$	2,704,477		$	2,560,813
Less non-controlling interest	4,324			4,905			3,933			5,392
Less preferred stock	144,784			144,784			144,784			144,784
Less goodwill	138,921			138,921			138,921			138,921
Less core deposit premium	3,356			4,370			3,143			4,088
Total tangible common equity (a)	$	2,336,822		$	2,233,841		$	2,413,696		$	2,267,628
Total assets	$	25,078,843		$	24,709,693		$	24,979,141		$	24,734,468
Less goodwill	138,921			138,921			138,921			138,921
Less core deposit premium	3,356			4,370			3,143			4,088
Total tangible assets (b)	$	24,936,566		$	24,566,402		$	24,837,077		$	24,591,459
Tangible common equity to tangible assets ratio (a)/(b)	9.37		%	9.09		%	9.72		%	9.22		%

Results of Operations

Summary


	Three Months Ended June 30								Six Months Ended June 30								Three Months Ended September 30								Nine Months Ended September 30
(Dollars in thousands)	2017			2016			% change		2017			2016			% change		2017			2016			% change		2017			2016			% change
Net interest income	$	182,807		$	171,829		6.4	%	$	361,080		$	335,604		7.6	%	$	182,591		$	171,243		6.6	%	$	543,671		$	506,847		7.3	%
Provision for loan losses	(10,758		)	(9,216		)	16.7		(21,886		)	(18,655		)	17.3		(10,704		)	(7,263		)	47.4		(32,590		)	(25,918		)	25.7
Non-interest income	123,084			116,570			5.6		240,150			235,594			1.9		122,242			119,319			2.4		362,392			354,913			2.1
Investment securities gains (losses), net	1,651			(744		)	N.M.		879			(1,739		)	N.M.
Investment securities losses, net																	(3,037		)	(1,965		)	54.6		(2,158		)	(3,704		)	(41.7	)
Non-interest expense	(184,594		)	(177,089		)	4.2		(371,424		)	(354,562		)	4.8		(184,572		)	(181,242		)	1.8		(555,996		)	(535,804		)	3.8
Income taxes	(33,201		)	(31,542		)	5.3		(58,108		)	(60,912		)	(4.6	)	(32,294		)	(30,942		)	4.4		(90,402		)	(91,854		)	(1.6	)
Non-controlling interest (expense) income	(29		)	85			N.M.		(227		)	(63		)	N.M.		338			(605		)	N.M.		111			(668		)	N.M.
Net income attributable to Commerce Bancshares, Inc.	78,960			69,893			13.0		150,464			135,267			11.2		74,564			68,545			8.8		225,028			203,812			10.4
Preferred stock dividends	(2,250		)	(2,250		)	—		(4,500		)	(4,500		)	—		(2,250		)	(2,250		)	—		(6,750		)	(6,750		)	—
Net income available to common shareholders	$	76,710		$	67,643		13.4	%	$	145,964		$	130,767		11.6	%	$	72,314		$	66,295		9.1	%	$	218,278		$	197,062		10.8	%

For the quarter ended ~~June~~September 30, 2017, net income attributable to Commerce Bancshares, Inc. (net income) amounted to ~~$79.0~~$74.6 million, an increase of ~~$9.1~~$6.0 million, or ~~13.0%~~8.8%, compared to the ~~second~~third quarter of the previous year. For the current quarter, the annualized return on average assets was ~~1.26%~~1.19%, the annualized return on average common equity was ~~12.48%~~11.35% and the efficiency ratio was ~~60.24%~~60.44%. Diluted earnings per common share was ~~$.75,~~$.71, an increase of ~~13.6%~~9.2% compared to ~~$.66~~$.65 per share in the ~~second~~third quarter of 2016 and ~~an increase~~a decrease of ~~10.3%~~5.3% compared to ~~$.68~~$.75 per share in the previous quarter.

Compared to the ~~second~~third quarter of last year, net interest income increased ~~$11.0~~$11.3 million, or ~~6.4%~~6.6%, mainly due to growth of ~~$13.1~~$15.1 million in interest income on loans, partly offset by an increase of ~~$2.6~~$3.5 million in deposits and borrowings interest expense. The provision for loan losses totaled ~~$10.8~~$10.7 million for the current quarter, representing an increase of ~~$1.5~~$3.4 million over the ~~second~~third quarter of 2016. Non-interest income increased ~~$6.5~~$2.9 million, or ~~5.6%~~2.4%, compared to the ~~second~~third quarter of 2016, mainly due to combined growth of ~~$5.3~~$4.6 million in trust, deposit and loan fee income, in addition to ~~current quarter~~higher gains of ~~$1.7 million~~$621 thousand on sales of ~~branch properties and~~ equipment leased to customers.

Net investment securities losses totaled $3.0 million in the current quarter compared to $2.0 million in the same quarter last year. The current quarter losses included net losses in fair value on private equity investments of $5.2 million, partly offset by ~~customers.~~ gains of $2.4 million resulting from the donation of appreciated securities to a charitable foundation.

Non-interest expense increased ~~$7.5~~$3.3 million, or ~~4.2%~~1.8%, over the ~~second~~third quarter of 2016 primarily due to increases in salaries and benefits expense and the contribution of ~~$2.3~~$2.5 million in appreciated securities toas mentioned above, partly offset by expense reductions resulting from a new bank card agreement which went into effect in the current quarter. The securities contribution expense and the related ~~foundation. A $2.2 million~~ securities gain ~~was recorded on the transaction, resulting~~resulted in a pre-tax loss of ~~$97~~$110 thousand and tax benefits of ~~$873~~$963 thousand. The Company made a similar ~~contribution~~contributions to the foundation in ~~the first quarter of 2017 and intends to make similar contributions in subsequent quarters this year.~~

~~Net investment securities gains totaled $1.7 million in the current quarter and $879 thousand in the first six months of 2017. Gains resulting from the securities donations were $2.2 million in both~~ the first and second quarters of 2017 ~~partly offset by losses in fair value on private equity securities of $2.8 million~~and will consider this strategy again in the ~~six month period.~~fourth quarter of this year.

Net income for the first ~~six~~nine months of 2017 was ~~$150.5~~$225.0 million, an increase of ~~$15.2~~$21.2 million, or ~~11.2%~~10.4%, over the same period last year. Diluted earnings per common share was ~~$1.43,~~$2.14, an increase of ~~11.7%~~10.9% compared to ~~$1.28~~$1.93 per share in the same period last year. For the first ~~six~~nine months of 2017, the annualized return on average assets was ~~1.21%~~1.20%, the annualized return on average common equity was ~~12.12%~~11.85%, and the efficiency ratio was ~~61.67%~~61.25%. Net interest income increased ~~$25.5~~$36.8 million, or ~~7.6%~~7.3%, over the same period last year. This growth was largely due to increases of ~~$22.1~~$37.2 million in loan interest income and ~~$6.7~~$5.6 million in investment securities interest income, offset by a ~~$3.9~~$7.5 million increase in deposits and borrowings interest expense. The provision for loan losses was ~~$21.9~~$32.6 million for the first ~~six~~nine months of 2017, up ~~$3.2~~$6.7 million over the same period last year. During the first nine months of 2017, securities losses of $2.2 million were recorded compared to $3.7 million for the same period last year. Net losses in fair value on private equity investments totaled $8.0 million in the first nine months of 2017, partly offset by gains of $6.7 million resulting from securities donations during that period. Non-interest income increased ~~$4.6~~$7.5 million, or ~~1.9%~~2.1%, over the first ~~six~~nine months of last year due to growth in trust, deposit and loan fees. Non-interest expense increased ~~$16.9~~$20.2 million, or ~~4.8%~~3.8%, due to higher salaries and benefits expense of ~~$9.5~~$13.9 million, in addition to securities contributions of ~~$4.5~~$7.0 million, as mentioned above.

Net Interest Income

The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates. Changes not solely due to volume or rate changes are allocated to rate.

Analysis of Changes in Net Interest Income


	Three Months Ended June 30, 2017 vs. 2016									Six Months Ended June 30, 2017 vs. 2016									Three Months Ended September 30, 2017 vs. 2016									Nine Months Ended September 30, 2017 vs. 2016
	Change due to									Change due to									Change due to									Change due to
(In thousands)	Average Volume			Average Rate			Total			Average Volume			Average Rate			Total			Average Volume			Average Rate			Total			Average Volume			Average Rate			Total
Interest income, fully taxable equivalent basis:
Loans:
Business	$	978		$	3,766		$	4,744		$	3,934		$	5,303		$	9,237		$	606		$	4,604		$	5,210		$	4,539		$	9,908		$	14,447
Real estate - construction and land	631			1,836			2,467			1,888			2,488			4,376			580			1,885			2,465			2,471			4,370			6,841
Real estate - business	2,870			415			3,285			5,282			(242		)	5,040			2,545			1,585			4,130			7,834			1,336			9,170
Real estate - personal	919			(144		)	775			1,878			(431		)	1,447			689			(26		)	663			2,569			(459		)	2,110
Consumer	662			735			1,397			1,047			689			1,736			1,207			657			1,864			2,247			1,353			3,600
Revolving home equity	(121		)	256			135			(332		)	348			16			(150		)	477			327			(483		)	826			343
Consumer credit card	(192		)	713			521			(315		)	984			669			(312		)	930			618			(626		)	1,913			1,287
Overdrafts	—			—			—			—			—			—			—			—			—			—			—			—
Total interest on loans	5,747			7,577			13,324			13,382			9,139			22,521			5,165			10,112			15,277			18,551			19,247			37,798
Loans held for sale	(442		)	13			(429		)	(388		)	20			(368		)	(60		)	13			(47		)	(450		)	35			(415		)
Investment securities:
U.S. government and federal agency securities	1,843			(2,159		)	(316		)	2,023			1,682			3,705			1,172			(2,376		)	(1,204		)	3,214			(713		)	2,501
Government-sponsored enterprise obligations	(1,632		)	(1,601		)	(3,233		)	(3,279		)	(1,916		)	(5,195		)	(141		)	(714		)	(855		)	(3,367		)	(2,683		)	(6,050		)
State and municipal obligations	70			50			120			651			(106		)	545			(440		)	(102		)	(542		)	207			(204		)	3
Mortgage-backed securities	1,846			(36		)	1,810			3,862			(790		)	3,072			2,114			(58		)	2,056			5,968			(840		)	5,128
Asset-backed securities	(153		)	1,596			1,443			(776		)	2,904			2,128			(1,176		)	1,766			590			(1,933		)	4,651			2,718
Other securities	(360		)	906			546			(835		)	4,516			3,681			(320		)	(967		)	(1,287		)	(1,199		)	3,593			2,394
Total interest on investment securities	1,614			(1,244		)	370			1,646			6,290			7,936			1,209			(2,451		)	(1,242		)	2,890			3,804			6,694
Federal funds sold and short-term securities purchased under
agreements to resell	2			16			18			(9		)	26			17			17			41			58			7			68			75
Long-term securities purchased under agreements to resell	(648		)	978			330			(1,159		)	1,807			648			(453		)	930			477			(1,618		)	2,743			1,125
Interest earning deposits with banks	17			194			211			2			336			338			4			390			394			7			725			732
Total interest income	6,290			7,534			13,824			13,474			17,618			31,092			5,882			9,035			14,917			19,387			26,622			46,009
Interest expense:
Deposits:
Savings	12			4			16			23			11			34			15			(2		)	13			39			8			47
Interest checking and money market	109			669			778			258			908			1,166			53			756			809			312			1,663			1,975
Time open & C.D.'s of less than $100,000	(66		)	31			(35		)	(132		)	(1		)	(133		)	(67		)	60			(7		)	(199		)	59			(140		)
Time open & C.D.'s of $100,000 and over	(184		)	659			475			76			1,176			1,252			(202		)	800			598			(118		)	1,968			1,850
Total interest on deposits	(129		)	1,363			1,234			225			2,094			2,319			(201		)	1,614			1,413			34			3,698			3,732
Federal funds purchased and securities sold under
agreements to repurchase	89			1,224			1,313			67			1,897			1,964			203			1,919			2,122			268			3,818			4,086
Other borrowings	(17		)	21			4			(1,254		)	893			(361		)	(10		)	10			—			(1,464		)	1,103			(361		)
Total interest expense	(57		)	2,608			2,551			(962		)	4,884			3,922			(8		)	3,543			3,535			(1,162		)	8,619			7,457
Net interest income, tax equivalent basis	$	6,347		$	4,926		$	11,273		$	14,436		$	12,734		$	27,170		$	5,890		$	5,492		$	11,382		$	20,549		$	18,003		$	38,552

Net interest income in the ~~second~~third quarter of 2017 was ~~$182.8~~$182.6 million, an increase of ~~$11.0~~$11.3 million over the ~~second~~third quarter of 2016. On a tax equivalent (T/E) basis, net interest income totaled ~~$190.9~~$190.5 million in the ~~second~~third quarter of 2017, up ~~$11.3~~$11.4 million over the same period last year and ~~up $3.5 million over~~down $368 thousand from the previous quarter. The increase in net interest income compared to the ~~second~~third quarter of 2016 was mainly due to higher interest income on loans (T/E) of ~~$13.3~~$15.3 million. The increase in interest on loans was a result of higher loan yields on nearly all loan products, especially commercial loans, many of which have variable rates.

Interest income on investment securities (T/E) ~~increased $370 thousand over~~decreased $1.2 million from the ~~second~~third quarter of 2016, mainly due to ~~higher~~lower interest income earned ~~on mortgage-backed and asset-backed securities. Securities interest also includes inflation-related interest~~ on the Company's holdings of U.S. Treasury inflation-protected securities (TIPS), which is tied to the Consumer Price Index. Interest income related to TIPS increased $2.5 million in the first six months of 2017 compared to the same period in 2016, and totaled $2.9 million in the current quarter and $3.7 million in the second quarter of 2016. The Company's net yield on earning assets (T/E) was ~~3.19%~~3.18% in the current quarter compared to ~~3.11%~~3.08% in the ~~second~~third quarter of 2016.

Total interest income (T/E) increased ~~$13.8~~$14.9 million over the ~~second~~third quarter of 2016. Interest income on loans (T/E) was ~~$136.8~~$141.4 million during the ~~second~~third quarter of 2017, and increased ~~$13.3~~$15.3 million, or ~~10.8%~~12.1%, over the same quarter last year. The increase was due to growth of ~~$669.4~~$595.3 million, or ~~5.2%~~4.6%, in average loan balances, and an increase of 2027 basis points in average rates earned. Most of the increase in interest income occurred in the business, construction, and business real estate loan categories. The largest increase to interest income occurred in business loan interest, which grew ~~$4.7~~$5.2 million due to higher average balances of ~~$136.0~~$82.9 million, or ~~2.9%~~1.8%, coupled with a 3138 basis point increase in the average rate earned. Construction loan interest grew $2.5 million, as average balances increased ~~$73.2~~$66.2 million, or ~~9.3%~~8.1%, and the average rate earned increased 8483 basis points. Business real estate loan interest increased ~~$3.3~~$4.1 million due to an increase in average balances of ~~$312.0~~$278.1 million, or ~~13.1%~~11.4%, with an increase of ~~five~~22 basis points in the average rate earned. Interest on consumer loans increased ~~$1.4~~$1.9 million over the same period last year as the average rate increased 1411 basis points, coupled with a ~~$69.8~~$122.4 million increase in average balances.

Interest income on investment securities (T/E) was ~~$60.5~~$55.9 million during the ~~second~~third quarter of 2017, which was ~~an increase~~a decrease of ~~$370 thousand over~~$1.2 million from the same quarter last year. The ~~increase~~decrease resulted mainly from ~~increased earnings on mortgage-backed and asset-backed securities, partly offset by~~ lower TIPS interest of ~~$869 thousand~~$1.8 million and lower interest earned on non-marketable securities and government-sponsored enterprise ~~obligations.~~obligations, partly offset by increased earnings on mortgage-backed securities. A decrease of $1.3 million in interest income on non-marketable investments resulted largely from the receipt of $938 thousand on a private equity debt investment, which had previously been on non-accrual status, recorded in the third quarter of 2016. Interest income on government-sponsored enterprise obligations declined $855 thousand mainly due to a decline of 63 basis points in the average rate earned, coupled with a decline of $24.9 million in average balances. Higher interest on mortgage-backed securities of ~~$1.8~~$2.1 million resulted from an increase of ~~$313.7~~$352.4 million in average balances. Interest income on asset-backed securities grew $1.4 million mainly due to a 27 basis point increase in the average rate earned. Partly offsetting these increases was a $3.2 million decline in interest income on government-sponsored enterprise obligations, which was partly the result of early maturity calls on certain securities in the second quarter of 2016. The average balance of government-sponsored enterprise obligations decreased $216.0 million and the average rate earned decreased 144 basis points. During the current quarter and the same quarter last year, adjustmentsAdjustments to premium amortization expense, due to ~~changes in~~slowing prepayment speeds on various ~~mortgage~~mortgage-backed and asset-backed securities, ~~were not significant.~~increased interest income $635 thousand in the current quarter, compared to adjustments of $746 thousand in the same quarter last year. The average balance of the total investment portfolio (excluding unrealized fair value adjustments) was ~~$9.6~~$9.3 billion in the ~~second~~third quarter of 2017, compared to ~~$9.4~~$9.1 billion in the ~~second~~third quarter of 2016.

Interest income on long-term securities purchased under agreements to resell increased ~~$330~~$477 thousand over the ~~second~~third quarter of 2016, due to an increase in the average rate earned of 5855 basis points, partly offset by lower balances invested of ~~$159.3~~$103.8 million.

The average tax equivalent yield on total interest earning assets was 3.37% in the ~~second~~third quarter of 2017, up from ~~3.25%~~3.22% in the ~~second~~third quarter of 2016.

Total interest expense increased ~~$2.6~~$3.5 million compared to the ~~second~~third quarter of 2016, due to a ~~$1.2~~$1.4 million increase in interest expense on interest bearing deposits and a ~~$1.3~~$2.1 million increase in interest expense on borrowings. The increase in deposit expense resulted mainly from an increase of ~~three~~four basis points in the overall average rate paid on deposits. Interest expense on C.D.'s of $100,000 and over rose ~~$475~~$598 thousand due to a 1722 basis point increase in average rates paid, but was partly offset by lower average balances of ~~$125.9~~$108.7 million. In addition, interest expense on interest checking and money market accounts increased ~~$778~~$809 thousand, asresulting mainly from an increase of three basis points in the average ~~balances increased $379.1 million and average rates paid rose slightly.~~rate paid. Interest expense on borrowings increased due to higher rates paid on customer repurchase agreements and overnight federal funds purchased. The overall average rate incurred on all interest bearing liabilities was ~~.29%~~.31% and .22% in the ~~second~~third quarters of 2017 and 2016, respectively.

Net interest income (T/E) for the first ~~six~~nine months of 2017 was ~~$378.2~~$568.7 million compared to ~~$351.0~~$530.1 million for the same period in 2016. For the first ~~six~~nine months of 2017, the net interest margin was ~~3.16%~~3.17% compared to ~~3.03%~~3.05% for the first ~~six~~nine months of 2016.

Total interest income (T/E) for the first ~~six~~nine months of 2017 increased ~~$31.1~~$46.0 million over the same period last year, due to higher interest income on loans and investment securities. Loan interest income (T/E) rose ~~$22.5~~$37.8 million due to ~~an $803.8~~a $733.9 million, or ~~6.3%~~5.7%, increase in total average loan balances and a 1217 basis point increase in the average rate earned. Most of the increase in loan interest occurred in the business, business real estate and construction loan categories. The growth in interest income of ~~$7.9~~$6.7 million on investment securities (T/E) was mainly due to ~~a $163.4 million increase in average balances coupled with a 13 basis point~~an increase in the average rate ~~earned.~~earned of six basis points, coupled with an increase in average balances of $154.9 million. Increased earnings were recorded for U.S. government ~~and federal agency~~ securities, partly due to higher TIPS interest of ~~$2.5 million, while interest~~$704 thousand. Interest earned on non-marketable investments rose ~~$3.8~~$2.5 million ~~partly~~mainly due to one-time interest receipts of $2.7 million on a private equity investment in the first quarter of ~~2017.~~2017, partly offset by the $938 thousand receipt in 2016 mentioned previously. Other increases in interest income occurred in mortgage-backed and asset-backed securities, which grew ~~$3.1~~$5.1 million and ~~$2.1~~$2.7 million, respectively. These increases were partly offset by lower interest earned on ~~government-sponsored~~government-

sponsored enterprise obligations of ~~$5.2~~$6.1 million, which saw

declines in average balances and rates earned. Interest income on long-term resell agreements grew ~~$648 thousand~~$1.1 million due to higher average rates ~~earned, partly offset by lower average balances.~~earned.

Total interest expense for the first ~~six~~nine months of 2017 increased ~~$3.9~~$7.5 million compared to last year. Interest expense on interest bearing deposits increased ~~$2.3~~$3.7 million, mainly due to a ~~three~~four basis point increase in the overall average rate paid. The overall rate increase included an increase of 1518 basis points in rates paid on C.D.'s of $100,000 and over, in addition to a slight increase in rates paid on interest checking and money market account balances. Interest expense on borrowings ~~also~~ increased ~~$1.6~~$3.7 million, mainly due to higher rates paid on federal funds purchased and repurchase agreements. Interest expense on FHLB borrowings declined ~~$404~~$412 thousand, mainly due to lower average balances, partly offset by higher rates paid. The overall cost of total interest bearing liabilities increased to ~~.27%~~.29% compared to .22% in the same period last year.

Summaries of average assets and liabilities and the corresponding average rates earned/paid appear on the last page of this discussion.

Non-Interest Income


	Three Months Ended June 30								Six Months Ended June 30								Three Months Ended September 30								Nine Months Ended September 30
(Dollars in thousands)	2017			2016			% change		2017			2016			% change		2017			2016			% change		2017			2016			% change
Bank card transaction fees	$	44,999		$	45,065		(.1	)%	$	88,203		$	89,535		(1.5	)%	$	44,521		$	47,006		(5.3	)%	$	132,724		$	136,541		(2.8	)%
Trust fees	33,120			30,241			9.5		65,134			59,484			9.5		34,620			30,951			11.9		99,754			90,435			10.3
Deposit account charges and other fees	22,861			21,328			7.2		44,803			42,019			6.6		22,659			22,241			1.9		67,462			64,260			5.0
Capital market fees	2,156			2,500			(13.8	)	4,498			5,225			(13.9	)	1,755			2,751			(36.2	)	6,253			7,976			(21.6	)
Consumer brokerage services	3,726			3,491			6.7		7,375			7,000			5.4		3,679			3,375			9.0		11,054			10,375			6.5
Loan fees and sales	4,091			3,196			28.0		7,259			5,706			27.2		3,590			3,123			15.0		10,849			8,829			22.9
Other	12,131			10,749			12.9		22,878			26,625			(14.1	)	11,418			9,872			15.7		34,296			36,497			(6.0	)
Total non-interest income	$	123,084		$	116,570		5.6	%	$	240,150		$	235,594		1.9	%	$	122,242		$	119,319		2.4	%	$	362,392		$	354,913		2.1	%
Non-interest income as a % of total revenue*	40.2		%	40.4		%			39.9		%	41.2		%			40.1		%	41.1		%			40.0		%	41.2		%

* Total revenue includes net interest income and non-interest income.

For the ~~second~~third quarter of 2017, total non-interest income amounted to ~~$123.1~~$122.2 million compared with ~~$116.6~~$119.3 million in the same quarter last year, which was an increase of ~~$6.5~~$2.9 million, or ~~5.6%~~2.4%. The increase was mainly due to growth in trust, deposit, swap and loan fee income, ~~coupled with gains on sales of several branch properties~~partly offset by lower bank card and ~~equipment leased to customers.~~capital market fees.

Bank card transaction fees for the current quarter decreased ~~slightly~~$2.5 million from the same quarter last year, mainly due to a decline in merchant fees of ~~$614 thousand, offset by growth of 2.9%~~$1.2 million, coupled with a decline in ~~both debit and credit card fees. Commercial~~corporate card fees ~~increased slightly~~of $1.5 million. The decline in merchant fees from the previous year resulted from the loss of several large customers over the last 12 months, while lower corporate card fees resulted from reduced margins earned on corporate card sales transactions compared to the same ~~quarter~~period last year. The table below is a summary of bank card transaction fees for the three and ~~six~~nine month periods ended ~~June~~September 30, 2017 and 2016.


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended September 30						Nine Months Ended September 30
(Dollars in thousands)	2017		2016		% change		2017		2016		% change		2017		2016		% change		2017		2016		% change
Debit card fees	$	10,326	$	10,032	2.9	%	$	19,967	$19,417		2.8	%	$	9,985	$	9,913	.7	%	$	29,952	$29,330		2.1	%
Credit card fees	6,482		6,302		2.9		12,223		11,947		2.3		6,371		6,245		2.0		18,594		18,192		2.2
Merchant fees	6,297		6,911		(8.9	)	12,139		14,029		(13.5	)	5,600		6,828		(18.0	)	17,739		20,857		(14.9	)
Corporate card fees	21,894		21,820		.3		43,874		44,142		(.6	)	22,565		24,020		(6.1	)	66,439		68,162		(2.5	)
Total bank card transaction fees	$	44,999	$	45,065	(.1	)%	$	88,203	$	89,535	(1.5	)%	$	44,521	$	47,006	(5.3	)%	$	132,724	$	136,541	(2.8	)%

Trust fees for the quarter increased ~~$2.9~~$3.7 million, or ~~9.5%~~11.9%, over the same quarter last year, resulting mainly from continued growth in private client trust fees, which were up ~~$2.0~~$2.7 million, or ~~9.0%~~11.7%. Deposit account fees increased ~~$1.5 million,~~$418 thousand, or ~~7.2%~~1.9%, over the same quarter last year, as deposit account service charges increased ~~$895~~$606 thousand, or ~~17.8%~~11.4%, while ~~overdraft and return item fees and~~ corporate cash management fees ~~increased 4.8% and 3.3%, respectively.~~decreased $365 thousand, or 4.0%. Consumer brokerage fees grew ~~$235~~$304 thousand, or 9.0%, while capital market fees declined ~~$344~~$996 thousand on lower ~~sales demand.~~trading securities income. Loan fees and sales increased ~~$895~~$467 thousand, or ~~28.0%~~15.0%, this quarter mainly due to higher mortgage banking revenue related to the Company's fixed rate residential mortgage sale program. Other non-interest income increased ~~$1.4~~$1.5 million compared to the same quarter last ~~year. This increase was mainly the result of current quarter~~year, partly due to higher gains of ~~$860~~$621 thousand on sales of ~~several branch properties, in addition to gains of $824 thousand recorded on sales of several~~ leased assets to customers upon lease termination. ~~Fees~~In addition, fees from ~~the~~interest rate swap sales ~~of tax credits~~ grew ~~$521~~$457 thousand this quarter compared with the same quarter last year, while ~~letter of credit~~foreign exchange transaction fees were higher by ~~$294~~$401 thousand. These increases were partly offset by a decline of $289 thousand in fees on interest rate swap sales, and income of $897 thousand recorded in the second quarter of last year for a trust-related settlement, which did not reoccur in the current period.

Non-interest income for the first ~~six~~nine months of 2017 was ~~$240.2~~$362.4 million compared to ~~$235.6~~$354.9 million in the first ~~six~~nine months

of 2016, resulting in an increase of ~~$4.6~~$7.5 million, or ~~1.9%~~2.1%. Bank card fees decreased ~~$1.3~~$3.8 million, or ~~1.5%~~2.8%, as a result of ~~a decline~~declines in merchant fees of ~~$1.9~~$3.1 million, or ~~13.5%~~14.9%, and corporate card fees of $1.7 million, or 2.5%, partly offset by increases of ~~$550~~$622 thousand in debit card fees and ~~$276~~$402 thousand in credit card fees. Trust fee income increased ~~$5.7~~$9.3 million, or ~~9.5%~~10.3%, as a result of growth in private client and institutional trust fees. Deposit account fees increased ~~$2.8~~$3.2 million, or ~~6.6%~~5.0%, mainly due to growth of ~~$1.6~~$2.2 million in deposit account service charges and ~~$766~~$942 thousand in overdraft and return item fees. Loan fees and sales increased ~~$1.6~~$2.0 million, or ~~27.2%~~22.9%, due to higher mortgage banking revenue. Consumer brokerage fees rose ~~$375~~$679 thousand due to higher mutual fund and advisory fee income, while capital market fees decreased ~~$727 thousand,~~$1.7 million, or ~~13.9%~~21.6%, due to continued lower sales volume. Other non-interest income decreased ~~$3.7~~$2.2 million, or ~~14.1%~~6.0%, mainly due to lower gains on sales of branch properties, lower fees from sales of interest rate swaps, and a trust-related income settlement recorded in the prior year ~~trust settlement mentioned above.~~which did not reoccur in the current period. These declines were partly offset by higher gains on leased asset sales in the current period.

Investment Securities Gains (Losses), Net


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended September 30						Nine Months Ended September 30
(In thousands)	2017			2016			2017			2016			2017			2016			2017			2016
Available for sale	$	1,671		$	(147	)	$	3,719		$	(270	)
Non-marketable	(20		)	(597		)	(2,840		)	(1,469		)
Private equity investments													$	(5,423	)	$	(1,965	)	$	(8,263	)	$	(3,457	)
Donations of securities													2,391			—			6,707			—
Other													(5		)	—			(602		)	(247		)
Total investment securities gains (losses), net	$	1,651		$	(744	)	$	879		$	(1,739	)	$	(3,037	)	$	(1,965	)	$	(2,158	)	$	(3,704	)

Net ~~gains and~~securities losses ~~on investment securities which were recognized in earnings during the three and six months ended June 30, 2017 and 2016 are shown in the table above. Net securities gains~~ amounted to ~~$1.7~~$3.0 million in the ~~second~~third quarter of 2017 and ~~$879 thousand~~$2.0 million in the same period last year. For the nine months ended September 30, net securities losses totaled $2.2 million in 2017 and $3.7 million in 2016. The net losses for both the current quarter and the first ~~six~~nine months of ~~2017. Included in these gains~~2017 were mainly comprised of realized and ~~losses are credit-related impairment~~unrealized losses on ~~certain non-agency guaranteed mortgage-backed~~the Company’s private equity securities, ~~which have been identified as other-than-temporarily impaired. These identified~~offset by realized gains recorded on the donation of appreciated securities ~~had~~to a ~~total fair value of $30.3 million at June 30, 2017. During~~charitable foundation. For the first ~~six~~nine months of 2017, credit-related impairment losses ~~of $320~~totaled $372 thousand, ~~were recorded,~~ compared to $270 thousand in the same period last year. ~~The current period also included gains on donations of appreciated common stock to~~In 2016, a ~~related charitable foundation, which were $2.2 million in both the first and the second quarters of 2017.~~

Gains and losses on non-marketable investment securities include those relating to private equity investments, which are primarily held by the Parent's majority-owned private equity subsidiaries. These gains and losses include fair value adjustments and gains and losses realized upon disposition. During the first six months of 2017, net losses in fair value of $2.8 million were recorded, compared to similar losses of $3.7 million in the same period in 2016. A gain of $1.8 million was ~~also~~ recorded ~~in 2016 resulting~~which resulted from the ~~Parent's~~ withdrawal ~~from~~of a private equity fund as required under ~~the Volcker~~Volker Rule ~~investment prohibitions.~~requirements. The portion of ~~the~~ private equity activity attributable to minority interests is reported as non-controlling ~~interest~~ in the consolidated statements of income and resulted in income of ~~$654~~$1.1 million during the first nine months of 2017 and $144 thousand during the first ~~six months of 2017 and $379 thousand during the first six~~nine months of 2016.

Non-Interest Expense


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended September 30						Nine Months Ended September 30
(Dollars in thousands)	2017		2016		% change		2017		2016		% change		2017		2016		% change		2017		2016		% change
Salaries and employee benefits	$	108,829	$	104,808	3.8	%	$	221,198	$	211,667	4.5	%	$	111,382	$	107,004	4.1	%	$	332,580	$	318,671	4.4	%
Net occupancy	11,430		11,092		3.0		22,873		22,395		2.1		11,459		12,366		(7.3	)	34,332		34,761		(1.2	)
Equipment	4,776		4,781		(.1	)	9,385		9,415		(.3	)	4,491		4,842		(7.2	)	13,876		14,257		(2.7	)
Supplies and communication	5,446		5,693		(4.3	)	11,155		12,522		(10.9	)	5,517		5,968		(7.6	)	16,672		18,490		(9.8	)
Data processing and software	23,356		22,770		2.6		46,453		45,669		1.7		22,700		23,663		(4.1	)	69,153		69,332		(.3	)
Marketing	4,488		4,389		2.3		7,712		8,202		(6.0	)	4,676		4,399		6.3		12,388		12,601		(1.7	)
Deposit insurance	3,592		3,143		14.3		7,063		6,308		12.0		3,479		3,576		(2.7	)	10,542		9,884		6.7
Other	22,677		20,413		11.1		45,585		38,384		18.8		20,868		19,424		7.4		66,453		57,808		15.0
Total non-interest expense	$	184,594	$	177,089	4.2	%	$	371,424	$	354,562	4.8	%	$	184,572	$	181,242	1.8	%	$	555,996	$	535,804	3.8	%

Non-interest expense for the ~~second~~third quarter of 2017 amounted to $184.6 million, an increase of ~~$7.5~~$3.3 million, or ~~4.2%~~1.8%, compared with ~~$177.1~~$181.2 million in the ~~second~~third quarter of last year. Salaries expense increased ~~$4.0~~$5.3 million, or ~~4.5%~~5.9%, mainly due to higher full-time salaries and incentive compensation costs. Employee benefits expense totaled ~~$15.8~~$15.6 million, ~~slightly higher than in the same period last year as increases in payroll taxes and 401(k) expense were offset by~~reflecting a decline of $957 thousand, or 5.8%, mostly on lower medical costs. Growth in salaries expense resulted partly from higher staffing costs, mainly in the areas of commercial and consumer banking, ~~commercial payments, residential lending~~wealth and information technology business units. Full-time equivalent employees totaled ~~4,805~~4,811 at ~~June~~September 30, 2017

compared to ~~4,779~~4,778 at ~~June~~September 30, 2016. Occupancy costs ~~increased $338~~decreased $907 thousand, or ~~3.0%~~7.3%, mostly due to ~~higher~~lower rent expense on leased properties during the third quarter of 2017 and demolition costs for a branch ~~maintenance costs, while supplies~~facility during the third quarter of 2016, which did not recur this quarter. Supplies and communication ~~marketing~~expense declined $451 thousand, or 7.6%, mainly due to lower issuance costs for credit and ~~equipment costs were well controlled.~~debit cards. Data processing expense ~~increased $586~~decreased $963 thousand, or ~~2.6%~~4.1%, mainly due to incentives received related to the renegotiation of a bank card processing agreement, as mentioned above, partly offset by higher online subscription service expense. ~~FDIC insurance~~Equipment costs ~~increased $449~~declined $351 thousand ~~or 14.3%,~~mainly due to ~~higher insurance rates that were effective July 1, 2016.~~lower depreciation expense. Other non-interest expense increased ~~$2.3~~$1.4 million, or ~~11.1%~~7.4%, compared to the same period in the previous year. This increase was mainly due to the donation of ~~$2.3~~$2.5 million in appreciated securities to a ~~related~~ charitable foundation,

as previously mentioned. In addition, lower deferred loan origination costs and higher ~~professional fees expense~~impairment costs on surplus branch sites were recorded. ~~Excluding~~These increases were partly offset by lower bank card operating costs resulting from the ~~donation expense, total non-interest expense grew 3.0% over~~new agreement, which declined approximately $1.2 million in the ~~same period in 2016.~~current quarter.

For the first ~~six~~nine months of 2017, non-interest expense amounted to ~~$371.4~~$556.0 million, an increase of ~~$16.9~~$20.2 million, or ~~4.8%~~3.8%, compared with ~~$354.6~~$535.8 million in the same period last year. Salaries and benefits expense increased ~~$9.5~~$13.9 million, or ~~4.5%~~4.4%, mainly due to higher full-time salaries and incentives expense. Supplies and communication expense decreased ~~$1.4~~$1.8 million, or ~~10.9%~~9.8%. This decrease was mainly the result of higher chip card reissue costs last year that have now declined. ~~Marketing costs were down$490 thousand, or 6.0%, due to lower spending in the first quarter of 2017, but are expected to increase in subsequent quarters this year.~~ FDIC insurance costs grew ~~$755~~$658 thousand, ~~while data processing costs grew $784 thousand, both~~or 6.7%, due to ~~the trends mentioned above.~~higher insurance rates that were effective July 1, 2016. Other non-interest expense increased ~~$7.2~~$8.6 million, or ~~18.8%~~15.0%, mainly due to donations of ~~$4.5~~$7.0 million in appreciated securities in the current period. Higher costs were also recorded in professional fees, bank card rewards expense, and ~~royalty fees expense,~~impairment losses on surplus branch sites, in addition to lower deferred loan origination costs. Partly offsetting these increases were lower bank card operating costs due to the new agreement mentioned above. Excluding the donation expense, total non-interest expense grew ~~3.5%~~2.5% over the prior year.

Provision and Allowance for Loan Losses


	Three Months Ended									Six Months Ended June 30						Three Months Ended									Nine Months Ended September 30
(In thousands)	June 30, 2017			Mar. 31, 2017			June 30, 2016			2017			2016			Sept. 30, 2017			June 30, 2017			Sept. 30, 2016			2017			2016
Provision for loan losses	$	10,758		$	11,128		$	9,216		$	21,886		$	18,655		$	10,704		$	10,758		$	7,263		$	32,590		$	25,918
Net loan charge-offs (recoveries):
Commercial:
Business	318			97			(65		)	415			398			195			318			(50		)	610			348
Real estate-construction and land	(207		)	(535		)	(507		)	(742		)	(518		)	(362		)	(207		)	(2,312		)	(1,104		)	(2,830		)
Real estate-business	(10		)	(39		)	(1,030		)	(49		)	(1,272		)	(106		)	(10		)	(106		)	(155		)	(1,378		)
Commercial net loan charge-offs (recoveries)	101			(477		)	(1,602		)	(376		)	(1,392		)	(273		)	101			(2,468		)	(649		)	(3,860		)
Personal Banking:
Real estate-personal	(131		)	19			305			(112		)	110			(137		)	(131		)	(78		)	(249		)	32
Consumer	2,642			2,096			1,781			4,738			4,380			3,057			2,642			2,240			7,795			6,620
Revolving home equity	104			7			75			111			163			(19		)	104			79			92			242
Consumer credit card	7,750			7,148			6,650			14,898			12,568			7,631			7,750			6,356			22,529			18,924
Overdrafts	292			435			307			727			526			445			292			434			1,172			960
Personal banking net loan charge-offs	10,657			9,705			9,118			20,362			17,747			10,977			10,657			9,031			31,339			26,778
Total net loan charge-offs	$	10,758		$	9,228		$	7,516		$	19,986		$	16,355		$	10,704		$	10,758		$	6,563		$	30,690		$	22,918


	Three Months Ended						Six Months Ended June 30				Three Months Ended						Nine Months Ended September 30
	June 30, 2017		Mar. 31, 2017		June 30, 2016		2017		2016		Sept. 30, 2017		June 30, 2017		Sept. 30, 2016		2017		2016
Annualized net loan charge-offs (recoveries)*:
Commercial:
Business	.03	%	.01	%	(.01	)%	.02	%	.02	%	.02	%	.03	%	—	%	.02	%	.01	%
Real estate-construction and land	(.10	)	(.26	)	(.26	)	(.18	)	(.14	)	(.16	)	(.10	)	(1.12	)	(.17	)	(.49	)
Real estate-business	—		(.01	)	(.17	)	—		(.11	)	(.02	)	—		(.02	)	(.01	)	(.08	)
Commercial net loan charge-offs (recoveries)	—		(.02	)	(.08	)	(.01	)	(.04	)	(.01	)	—		(.12	)	(.01	)	(.07	)
Personal Banking:
Real estate-personal	(.03	)	—		.06		(.01	)	.01		(.03	)	(.03	)	(.02	)	(.02	)	—
Consumer	.53		.43		.37		.48		.46		.59		.53		.46		.52		.46
Revolving home equity	.10		.01		.07		.06		.08		(.02	)	.10		.08		.03		.08
Consumer credit card	4.25		3.88		3.62		4.06		3.39		4.09		4.25		3.37		4.07		3.38
Overdrafts	26.00		42.15		31.53		33.73		24.35		40.37		26.00		37.11		35.98		28.84
Personal banking net loan charge-offs	.83		.77		.74		.80		.71		.83		.83		.71		.81		.71
Total annualized net loan charge-offs	.32	%	.28	%	.24	%	.30	%	.26	%	.31	%	.32	%	.20	%	.30	%	.24	%

* as a percentage of average loans (excluding loans held for sale)

The Company has an established process to determine the amount of the allowance for loan losses, which assesses the risks and losses inherent in its portfolio. This process provides an allowance consisting of a specific allowance component based on certain individually evaluated loans and a general component based on estimates of allowances for pools of loans. The Company's policies and processes for determining the allowance for loan losses are discussed in Note 1 to the consolidated financial statements and in the Allowance for Loan Losses discussion in Item 7 of the 2016 Annual Report on Form 10-K.

Net loan charge-offs in the ~~second~~third quarter of 2017 amounted to ~~$10.8~~$10.7 million, compared with ~~$9.2~~$10.8 million in the prior quarter and ~~$7.5~~$6.6 million in the ~~second~~third quarter of last year. ~~The increase in current~~During the third quarter of 2017, the Company recorded net recoveries on commercial loans of $273 thousand, compared to net charge-offs ~~over~~of $101 thousand in the ~~previous~~prior quarter ~~was mainly due~~and net recoveries of $2.5 million in the third quarter of last year. Net charge-offs on consumer loans increased $415 thousand compared to ~~increases in~~the prior quarter, while net charge-offs on revolving home equity and consumer credit ~~card, consumer,~~cards loans declined by $123 thousand and ~~business~~$119 thousand, respectively. Additionally, net loan charge-offs ~~of $602~~on overdrafts increased $153 thousand ~~$546 thousand, and $221 thousand, respectively. The increase in net loan charge-offs was also driven by lower net recoveries on construction loans, which totaled $207 thousand in~~during the ~~second~~third quarter of 2017, compared to ~~net recoveries of $535 thousand in~~ the prior quarter. ~~These increases in net loan charge-offs were partially offset by decreases~~Compared to the third quarter of ~~$150 thousand and $143 thousand in~~2016, net charge-offs on ~~personal real estate~~consumer and consumer credit card loans increased $817 thousand and ~~overdrafts,~~$1.3 million, respectively.

For the three months ended ~~June~~September 30, 2017, annualized net ~~loan~~ charge-offs on average consumer credit card loans totaled ~~4.25%~~4.09%, compared with ~~3.88%~~4.25% in the previous quarter and ~~3.62%~~3.37% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to ~~.53%~~.59%, compared to ~~.43%~~.53% in the prior quarter and ~~.37%~~.46% in the same period last year. Annualized net charge-offs on personal real estate loans also remained low this quarter. In the ~~second~~third quarter of 2017, total annualized net loan charge-offs were ~~.32%~~.31%, compared to ~~.28%~~.32% in the previous quarter and ~~.24%~~.20% in the same period last year.

In the current quarter, the provision for loan losses totaled $10.7 million, a slight decease compared to $10.8 million ~~and~~in the prior quarter. In both quarters, the provision for loan losses matched net loan charge-offs. InDuring the ~~prior~~third quarter of 2016, the provision for loan losses totaled ~~$11.1~~$7.3 million and exceeded net loan charge-offs by $1.9 million, and in the same period last year, the provision for loan losses totaled $9.2 million and exceeded net loan charge-offs by $1.7 million. The provision for loan losses in the current quarter decreased by $370 thousand compared to the previous quarter. $700 thousand.

For the ~~six~~nine months ended ~~June~~September 30, 2017, net loan charge-offs totaled ~~$20.0~~$30.7 million, compared to ~~$16.4~~$22.9 million in 2016. The increase in net loan charge-offs resulted mainly from an increase in consumer credit card loan net ~~loan~~ charge-offs, which increased ~~$2.3~~$3.6 million, and $3.2 million fewer net recoveries on ~~business real estate~~commercial loans. Additionally, net charge-offs on consumer loans ~~which declined~~increased $1.2 million. The provision for loan losses for the first ~~six~~nine months of 2017 was ~~$21.9~~$32.6 million and increased ~~$3.2~~$6.7 million compared to the previous year. The increase in provision expense was the result of higher net loan losses during the ~~six~~nine months ended ~~June~~September 30, 2017 compared to the same period in the prior year.

At ~~June~~September 30, 2017, the allowance for loan losses amounted to $157.8 million and was ~~1.16%~~1.15% of total loans and more than ten times total non-accrual loans. At December 31, 2016, the allowance for loan losses amounted to $155.9 million and was 1.16% of total ~~loans and over ten times total non-accrual~~ loans.

Risk Elements of Loan Portfolio

The following table presents non-performing assets and loans which are past due 90 days and still accruing interest. Non-performing assets include non-accruing loans and foreclosed real estate. Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. Loans that are 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are personal banking loans that are exempt under regulatory rules from being classified as non-accrual.


(Dollars in thousands)	June 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016
Non-accrual loans	$	13,362		$	14,283		$	13,640		$	14,283
Foreclosed real estate	515			366			1,063			366
Total non-performing assets	$	13,877		$	14,649		$	14,703		$	14,649
Non-performing assets as a percentage of total loans	.10		%	.11		%	.11		%	.11		%
Non-performing assets as a percentage of total assets	.06		%	.06		%	.06		%	.06		%
Total loans past due 90 days and still accruing interest	$	14,630		$	16,396		$	16,464		$	16,396

Non-accrual loans, which are also classified as impaired, totaled ~~$13.4~~$13.6 million at ~~June~~September 30, 2017, and decreased ~~$921~~$643 thousand from balances at December 31, 2016. The decrease occurred mainly in business loans, which decreased ~~$2.4~~$1.9 million, partly offset by an increase of ~~$1.2~~$1.1 million in consumer loans. At ~~June~~September 30, 2017, non-accrual loans were comprised mainly of business ~~(47.4%~~(50.0%), personal real estate ~~(26.2%~~(21.0%), and business real estate ~~(13.7%~~(17.2%) loans. Foreclosed real estate totaled ~~$515 thousand~~$1.1 million at ~~June~~September 30, 2017, an increase of ~~$149~~$697 thousand when compared to December 31, 2016. Total loans past due 90

days or more and still accruing interest were ~~$14.6~~$16.5 million as of ~~June~~September 30, 2017, ~~a decrease~~an increase of ~~$1.8 million~~$68 thousand when compared to December 31, 2016. Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section in Note 2 to the consolidated financial statements.

In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as substandard under the Company's internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as potential problem loans, they may never become non-performing. Such loans totaled ~~$107.8~~$172.4 million at ~~June~~September 30, 2017 compared with $99.5 million at December 31, 2016, resulting in an increase of ~~$8.3~~$73.0 million, or ~~8.3%~~73.4%.


(In thousands)	June 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Potential problem loans:
Business	$	47,860	$	43,438	$	109,686	$	43,438
Real estate – construction and land	2,703		1,172		3,270		1,172
Real estate – business	51,693		52,913		53,537		52,913
Real estate – personal	5,507		1,955		5,955		1,955
Total potential problem loans	$	107,763	$	99,478	$	172,448	$	99,478

At ~~June~~September 30, 2017, the Company had ~~$59.2~~$73.1 million of loans whose terms have been modified or restructured under a troubled debt restructuring. These loans have been extended to borrowers who are experiencing financial difficulty and who have been granted a concession, as defined by accounting guidance, and are further discussed in the "Troubled debt restructurings" section in Note 2 to the consolidated financial statements. This balance includes certain commercial loans totaling ~~$36.8~~$51.0 million which are classified as substandard and included in the table above because of this classification.

Loans with Special Risk Characteristics

Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans are considered at high risk of loss due to their terms, location, or special conditions. Additional information about the major types of loans in these categories and their risk features are provided below. Information based on loan-to-value (LTV) ratios was generally calculated with valuations at loan origination date. The Company normally obtains an updated appraisal or valuation at the time a loan is renewed or modified, or if the loan becomes significantly delinquent or is in the process of being foreclosed upon.

Real Estate – Construction and Land Loans

The Company's portfolio of construction and land loans, as shown in the table below, amounted to ~~6.2%~~6.7% of total loans outstanding at ~~June~~September 30, 2017. The largest component of construction and land loans was commercial construction, which grew ~~$77.7~~$158.9 million during the ~~six~~nine months ended ~~June~~September 30, 2017. At ~~June~~September 30, 2017, multi-family residential construction loans totaled approximately ~~$218.6~~$225.0 million, or ~~37.6%~~34.0%, of the commercial construction loan portfolio.


(Dollars in thousands)	June 30, 2017		% of Total		% of Total Loans		December 31, 2016		% of Total		% of Total Loans		September 30, 2017		% of Total		% of Total Loans		December 31, 2016		% of Total		% of Total Loans
Residential land and land development	$	79,120	9.3	%	.6	%	$	86,373	10.9	%	.6	%	$	82,686	9.0	%	.6	%	$	86,373	10.9	%	.6	%
Residential construction	130,231		15.4		.9		132,334		16.8		1.0		124,040		13.4		.9		132,334		16.8		1.0
Commercial land and land development	57,637		6.8		.4		69,057		8.7		.5		52,480		5.7		.4		69,057		8.7		.5
Commercial construction	581,164		68.5		4.3		503,472		63.6		3.8		662,403		71.9		4.8		503,472		63.6		3.8
Total real estate - construction and land loans	$	848,152	100.0	%	6.2	%	$	791,236	100.0	%	5.9	%	$	921,609	100.0	%	6.7	%	$	791,236	100.0	%	5.9	%

Real Estate – Business Loans

Total business real estate loans were $2.7 billion at ~~June~~September 30, 2017 and comprised ~~20.0%~~19.6% of the Company's total loan portfolio. These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. At ~~June~~September 30, 2017, ~~36.8%~~36.9% of business real estate loans were for owner-occupied real estate properties, which present lower risk profiles.


(Dollars in thousands)	June 30, 2017		% of Total		% of Total Loans		December 31, 2016		% of Total		% of Total Loans		September 30, 2017		% of Total		% of Total Loans		December 31, 2016		% of Total		% of Total Loans
Owner-occupied	$	1,002,503	36.8	%	7.4	%	$	1,004,238	38.0	%	7.5	%	$	995,922	36.9	%	7.2	%	$	1,004,238	38.0	%	7.5	%
Office	349,017		12.8		2.6		319,638		12.1		2.4		362,477		13.4		2.6		319,638		12.1		2.4
Retail	353,936		13.0		2.6		344,221		13.0		2.5		351,671		13.0		2.6		344,221		13.0		2.5
Multi-family	305,019		11.2		2.2		255,369		9.7		1.9		293,299		10.9		2.1		255,369		9.7		1.9
Hotels	155,979		5.7		1.1		174,207		6.6		1.3		170,302		6.3		1.2		174,207		6.6		1.3
Farm	162,952		6.0		1.2		173,210		6.6		1.3		162,951		6.0		1.2		173,210		6.6		1.3
Industrial	123,537		4.4		.9		122,940		4.6		.9		90,167		3.4		.7		122,940		4.6		.9
Other	274,406		10.1		2.0		249,551		9.4		1.9		273,385		10.1		2.0		249,551		9.4		1.9
Total real estate - business loans	$	2,727,349	100.0	%	20.0	%	$	2,643,374	100.0	%	19.7	%	$	2,700,174	100.0	%	19.6	%	$	2,643,374	100.0	%	19.7	%

Real Estate – Personal Loans

The Company's $2.0 billion personal real estate loan portfolio is composed mainly of residential first mortgage real estate loans. As shown on page ~~44,~~43, recent loss rates have remained low, and at ~~June~~September 30, 2017, loans past due over 30 days ~~decreased $3.2~~increased $1.5 million; however, non-accrual loans ~~increased $101~~decreased $540 thousand compared to December 31, 2016. Also, as shown in Note 2, only ~~3.9%~~3.6% of this portfolio has FICO scores of less than 660. Approximately ~~$21.9~~$29.5 million, or ~~1.1%~~1.5%, of personal real estate loans were structured with interest only payments. These loans are typically made to high net-worth borrowers and generally have low LTV ratios at origination or have additional collateral pledged to secure the loan. Therefore, they are not perceived to represent above normal credit risk. Loans originated with interest only payments were not made to "qualify" the borrower for a lower payment amount. At ~~June~~September 30, 2017, loans with no mortgage insurance and an original LTV higher than 80% totaled ~~$165.6~~$172.3 million compared to $158.8 million at December 31, 2016.

Revolving Home Equity Loans

The Company had ~~$403.4~~$391.3 million in revolving home equity loans at ~~June~~September 30, 2017 that were generally collateralized by residential real estate. Most of these loans ~~(92.9%~~(92.6%) are written with terms requiring interest only monthly payments. These loans are offered in three main product lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As of ~~June~~September 30, 2017, the outstanding principal of loans with an original LTV higher than 80% was ~~$54.0~~$52.9 million, or ~~13.4%~~13.5% of the portfolio, compared to $55.1 million as of December 31, 2016. Total revolving home equity loan balances over 30 days past due or on non-accrual status were ~~$3.1~~$3.0 million at ~~June~~September 30, 2017 compared to $2.2 million at December 31, 2016. The weighted average FICO score for the total current portfolio balance is 793. At maturity, the accounts are re-underwritten, and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is required, or the borrower may pay off the loan. During the remainder of 2017 through 2019, approximately ~~18%~~15% of the Company's current outstanding balances are expected to mature. Of these balances, approximately

~~81%~~ 87% have a FICO score of 700 or higher. The Company does not expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss levels.

Other Consumer Loans

Within the consumer loan portfolio are several direct and indirect product lines, which include loans for the purchase of automobiles, marine and RVs. Outstanding balances for auto loans were ~~$993.3 million~~$1.0 billion and $972.5 million at ~~June~~September 30, 2017 and December 31, 2016, respectively. The balances over 30 days past due amounted to ~~$12.7~~$14.1 million at ~~June~~September 30, 2017 compared to $13.8 million at the end of 2016, and comprised ~~1.3% and~~ 1.4% of the outstanding balances of these loans at ~~June~~both September 30, 2017 and December 31, ~~2016, respectively.~~2016. For the ~~six~~nine months ended ~~June~~September 30, 2017, ~~$239.7~~$383.7 million of new auto loans were originated, compared to $431.0 million during the full year of 2016. At ~~June~~September 30, 2017, the automobile loan portfolio had a weighted average FICO score of ~~747.~~749.

The Company's balance of marine and RV loans totaled ~~$85.2~~$78.5 million at ~~June~~September 30, 2017, compared to $102.4 million at December 31, 2016, and the balances over 30 days past due amounted to ~~$2.8~~$3.2 million at ~~June~~September 30, 2017 compared to $4.3 million at the end of 2016. The net charge-offs on marine and RV loans increased slightly from ~~$691~~$858 thousand in the first ~~six~~nine months of 2016 to ~~$741 thousand~~$1.0 million in the first ~~six~~nine months of the current year.

Additionally, the Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at ~~June~~September 30, 2017 of ~~$740.9~~$752.4 million in consumer credit card loans outstanding, approximately ~~$155.1~~$157.2 million, or 20.9%, carried a low promotional rate. Within the next six months, ~~$43.7~~$44.1 million of these loans are scheduled to convert to the ongoing higher contractual rate. To mitigate some of the risk involved with this credit card product, the Company performs credit checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.

Energy Lending

The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled ~~$140.8~~$116.1 million at ~~June~~September 30, 2017, as shown in the table below. As of ~~June~~September 30, 2017, there were ~~$6.9~~$5.5 million of energy loans, or ~~4.9%~~4.7%, of the energy portfolio, with a "substandard" rating or on non-accrual status, compared to $8.0 million, or 4.6% of the energy portfolio, at December 31, 2016. ~~Included in these amounts~~At December 31, 2016, there were non-accrual loans of ~~zero at June 30, 2017, compared to~~ $847 thousand included in these amounts, while there were no non-accrual energy loans at ~~December 31, 2016.~~September 30, 2017. There were no energy loans 90 days past due and still accruing interest at ~~June~~September 30, 2017 or December 31, 2016.


(In thousands)	June 30, 2017		December 31, 2016		Unfunded commitments at June 30, 2017		September 30, 2017		December 31, 2016		Unfunded commitments at September 30, 2017
Extraction	$	87,935	$	103,011	$	38,761	$	78,869	$	103,011	$	47,011
Mid-stream shipping and storage	7,904		22,985		61,800		8,158		22,985		61,871
Downstream distribution and refining	30,900		30,231		18,033		18,106		30,231		31,713
Support activities	14,028		15,296		21,832		10,919		15,296		22,696
Total energy lending portfolio	$	140,767	$	171,523	$	140,426	$	116,052	$	171,523	$	163,291

Shared National Credits

The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national credits, or SNCs. Regulations define SNCs as loans exceeding $20 million that are shared by three or more financial institutions. The Company typically participates in these loans when business operations are maintained in the local communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled ~~$892.4~~$917.2 million at ~~June~~September 30, 2017, compared to $836.1 million at December 31, 2016. Additional unfunded commitments at ~~June~~September 30, 2017 totaled ~~$1.3~~$1.4 billion.

Income Taxes

Income tax expense was ~~$33.2~~$32.3 million in the ~~second~~third quarter of 2017, compared to ~~$24.9~~$30.9 million in the ~~first quarter of 2017 and $31.5 million in the second~~third quarter of 2016. The Company's effective tax rate, including the effect of non-controlling interest, was ~~29.6%~~30.2% in the ~~second~~third quarter of 2017, compared to ~~25.8% in the first quarter of 2017 and~~ 31.1% in the ~~second~~third quarter of 2016. For the nine months ended September 30, 2017, income tax expense was $90.4 million, compared to $91.9 million for the nine months ended September 30, 2016. The Company's effective tax rate, including the effect of non-controlling interest, was 28.7% for the first nine months of 2017, compared to 31.1% for the nine months ended September 30, 2016. The lower effective tax rate for the first ~~quarter~~nine months of 2017 was primarily due to the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" on January 1, ~~2017.~~2017, as well as tax benefits related to the donation of appreciated securities to a charitable foundation. The adoption of ASU 2016-09 requires all excess tax benefits and tax deficiencies arising from share-based award payments to be recognized as income tax expense or benefit in the income statement, while in previous periods these benefits and deficiencies were recognized in equity. The amount of excess tax benefits (net of tax deficiencies) recognized as a reduction to income tax expense was $4.5 million in the first quarter of 2017, ~~and~~ $1.6 million in the second quarter of 2017, and $619 thousand in the third quarter of 2017. These tax benefits are expected to be seasonally higher in the first quarter of each year when the majority of the Company’s equity compensation vests.

~~The decrease in the Company's effective tax rate for the three months ended June 30, 2017 compared to the same period in the prior year was due to tax benefits related to~~ Additionally, the donation of appreciated securities to a charitable foundation ~~lowering~~provided tax benefits of $2.7 million for the ~~effective tax rate in the current quarter, as mentioned previously.~~first nine months of 2017.

Financial Condition

Balance Sheet

Total assets of the Company were ~~$25.1~~$25.0 billion at ~~June~~September 30, 2017 and $25.6 billion at December 31, 2016. Earning assets (excluding the allowance for loan losses and fair value adjustments on investment securities) amounted to ~~$23.8~~$23.7 billion at ~~June~~September 30, 2017 and $24.2 billion at December 31, 2016, and consisted of ~~57%~~58% in loans and ~~40%~~38% in investment securities.

At ~~June~~September 30, 2017, total loans increased ~~$213.9~~$332.8 million, or ~~1.6%~~2.5%, compared with balances at December 31, 2016. ~~On an overall basis, the largest contributions~~This increase was mainly due to ~~loan~~ growth ~~occurred~~ in ~~business~~construction loans and ~~business real estate~~consumer loans, which increased ~~$76.0~~$130.4 million and ~~$84.0~~$122.6 million, ~~respectively, over year end balances.~~respectively. The increase in ~~business~~construction loans primarily resulted from growth in commercial ~~and industrial loans, commercial credit card loans, and tax-free loans. Business real estate loans increased largely because of growth in multi-family residential loans.~~construction projects. Consumer loans, which includes automobile, marine and RV, fixed rate home equity, and other consumer loans, and increased ~~$47.7 million during the first six months~~largely because of ~~the year.~~growth in automobile and other consumer lending activity. Higher demand for automobile loans, coupled with growth in patient health care and ~~other consumer loans~~private banking lending activities grew loan balances ~~$71.0~~$141.3 million. However, fixed rate home equity loans decreased by $6.1 million and marine and RV loans continued to run off during the period by ~~$17.2~~$23.9 million. ~~Construction~~Business loans increased ~~$56.9~~$57.7 million during the first ~~six~~nine months of the year primarily due to higher commercial ~~construction~~credit card lending activity, while business real estate loans grew by $56.8 million over year end balances due to growth in multi-family residential projects. Personal real estate loan balances ~~were largely unchanged from year end balances;~~increased $18.9 million during the first nine months of 2017; however, the Company originated and sold ~~$87.7~~$151.8 million of longer-term fixed rate loans during the first ~~six~~nine months of 2017 compared to ~~$64.5~~$107.9 million in the same period of 2016. ~~Declines in consumer~~Consumer credit card ~~(down $35.6 million)~~loans and revolving home equity loans ~~(down $10.2 million) partially offset growth throughout the year.~~declined $24.1 million and $22.3 million, respectively.

Available for sale investment securities, excluding fair value adjustments, decreased by ~~$258.6~~$628.7 million at ~~June~~September 30, 2017 compared to December 31, 2016. Purchases of securities during this period totaled ~~$672.4 million,~~$1.1 billion, offset by sales, maturities, and pay downs of ~~$912.0 million.~~$1.7 billion. The largest decreases in outstanding balances occurred in asset-backed securities ~~agency mortgage-backed securities,~~ and state and municipal obligations, which decreased ~~$139.8 million, $70.7~~$654.2 million and ~~$33.6~~$91.5 million, respectively. These decreases were partially offset by an increase in agency mortgage-backed securities of $66.4 million. At ~~June~~September 30, 2017, the duration of the investment portfolio was ~~2.8~~3.0 years, and maturities and pay downs of approximately ~~$1.6~~$1.5 billion are expected to occur during the next 12 months.

Total deposits at ~~June~~September 30, 2017 amounted to ~~$20.8~~$20.4 billion and decreased ~~$275.4~~$657.3 million compared to deposit balances at December 31, 2016. The decline in deposits was driven by decreases in certificates of deposit (C.D.'s) of ~~$157.4~~$424.5 million, or ~~7.0%~~18.9%, mainly in jumbo ~~accounts, and~~C.D.s, as well as declines in interest checking deposits of ~~$106.3~~$251.2 million, or ~~8.3%~~19.7%, and money market deposits of $140.6 million, or 1.5%. These decreases were offset by growth in ~~money market deposits of $42.6 million, or .5%, and~~ savings accounts of ~~$60.6~~$52.2 million, or ~~7.8%~~6.7%. ~~Non-interest~~Additionally, non-interest bearing deposits ~~also declined $114.9~~increased $106.7 million, or ~~1.5%~~1.4%, mainly due to ~~a reduction~~an increase of ~~$164.4~~$139.1 million in business accounts, partially offset by ~~an increase~~a decrease of ~~$66.3~~$43.7 million in ~~personal~~trust accounts.

Total borrowings were ~~$1.4~~$1.5 billion at ~~June~~September 30, 2017 compared to $1.8 billion at December 31, 2016. Short-term borrowings of federal funds purchased and customer repurchase agreements totaled ~~$1.3~~$1.4 billion at ~~June~~September 30, 2017, a decrease of ~~$467.5~~$314.9 million from balances of $1.7 billion at December 31, 2016. The overall decrease in these balances was due to a decrease of ~~$668.1~~$613.0 million in customer repurchase agreements, offset by an increase of ~~$200.7~~$298.1 million in federal funds purchased.

Liquidity and Capital Resources

Liquidity Management

The Company’s most liquid assets are comprised of available for sale investment securities, federal funds sold, securities purchased under agreements to resell (resale agreements), and balances at the Federal Reserve Bank, as follows:


(In thousands)	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2017		June 30, 2017		December 31, 2016
Liquid assets:
Available for sale investment securities	$	9,439,701	$	9,671,975	$	9,649,203	$	9,109,287	$	9,439,701	$	9,649,203
Federal funds sold	16,520		2,205		15,470		32,630		16,520		15,470
Long-term securities purchased under agreements to resell	625,000		725,000		725,000		700,000		625,000		725,000
Balances at the Federal Reserve Bank	80,860		120,234		272,275		105,422		80,860		272,275
Total	$	10,162,081	$	10,519,414	$	10,661,948	$	9,947,339	$	10,162,081	$	10,661,948

Federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled ~~$16.5~~$32.6 million as of ~~June~~September 30, 2017. Long-term resale agreements, maturing through ~~2018,~~2021, totaled ~~$625.0~~$700.0 million at ~~June~~September 30, 2017. Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities, safe-kept by a third-party custodian, as collateral. This collateral totaled ~~$653.4~~$725.7 million in fair value at ~~June~~September 30, 2017. Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled ~~$80.9~~$105.4 million at ~~June~~September 30, 2017. The fair value of the available for sale investment portfolio was ~~$9.4~~$9.1 billion at ~~June~~September 30, 2017 and included an unrealized net gain in fair value of ~~$97.9~~$137.7 million. The total net unrealized gain included net gains of ~~$19.6~~$20.3 million on mortgage-backed securities, ~~$32.7~~$33.3 million on state and municipal obligations, and ~~$42.3~~$78.1 million on common and preferred stock held by the Parent.

Approximately ~~$1.6~~$1.5 billion of the available for sale investment portfolio is expected to mature or pay down during the next 12 months, and these funds offer substantial resources to meet new loan demand or help offset reductions in the Company's deposit funding base. The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the Federal Reserve Bank. Total investment securities pledged for these purposes were as follows:


(In thousands)	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2017		June 30, 2017		December 31, 2016
Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings	$	99,541	$	108,240	$	115,858	$	91,819	$	99,541	$	115,858
FHLB borrowings and letters of credit	15,560		16,743		17,781		14,363		15,560		17,781
Securities sold under agreements to repurchase *	1,747,101		1,726,909		2,447,835		1,752,650		1,747,101		2,447,835
Other deposits and swaps	2,032,334		1,956,791		1,773,017		1,845,395		2,032,334		1,773,017
Total pledged securities	3,894,536		3,808,683		4,354,491		3,704,227		3,894,536		4,354,491
Unpledged and available for pledging	3,718,231		4,071,649		3,516,648		3,605,134		3,718,231		3,516,648
Ineligible for pledging	1,826,934		1,791,643		1,778,064		1,799,926		1,826,934		1,778,064
Total available for sale securities, at fair value	$	9,439,701	$	9,671,975	$	9,649,203	$	9,109,287	$	9,439,701	$	9,649,203

* Includes securities pledged for collateral swaps, as discussed in Note 11 to the consolidated financial statements.

Liquidity is also available from the Company's large base of core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts. At ~~June~~September 30, 2017, such deposits totaled ~~$18.7~~$18.6 billion and represented ~~90.0%~~91.1% of total deposits. These core deposits are normally less volatile, as they are often with customer relationships tied to other products offered by the Company, promoting long lasting relationships and stable funding sources. Time open and certificates of deposit of $100,000 and over totaled ~~$1.4~~$1.2 billion at ~~June~~September 30, 2017. These accounts are normally considered more volatile and higher costing and comprised ~~6.7%~~5.7% of total deposits at ~~June~~September 30, 2017.


(In thousands)	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2017		June 30, 2017		December 31, 2016
Core deposit base:
Non-interest bearing	$	7,314,506	$	7,237,815	$	7,429,398	$	7,536,127	$	7,314,506	$	7,429,398
Interest checking	1,169,605		1,146,600		1,275,899		1,024,748		1,169,605		1,275,899
Savings and money market	10,258,010		10,292,478		10,154,890		10,066,452		10,258,010		10,154,890
Total	$	18,742,121	$	18,676,893	$	18,860,187	$	18,627,327	$	18,742,121	$	18,860,187

Other important components of liquidity are the level of borrowings from third party sources and the availability of future credit. The Company's outside borrowings are mainly comprised of federal funds purchased, securities sold under agreements to repurchase, and advances from the FHLB, as follows:


(In thousands)	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2017		June 30, 2017		December 31, 2016
Borrowings:
Federal funds purchased	$	253,510	$	340,195	$	52,840	$	350,910	$	253,510	$	52,840
Securities sold under agreements to repurchase	1,002,934		980,954		1,671,065		1,058,074		1,002,934		1,671,065
FHLB advances	100,000		100,000		100,000		100,000		100,000		100,000
Other debt	1,903		1,975		2,049		2,553		1,903		2,049
Total	$	1,358,347	$	1,423,124	$	1,825,954	$	1,511,537	$	1,358,347	$	1,825,954

Federal funds purchased are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit. Securities sold under agreements to repurchase are secured by a portion of the Company's investment portfolio and are comprised of non-insured customer funds totaling ~~$1.0~~$1.1 billion, which generally mature overnight. The Company also borrows on a secured basis through advances from the FHLB, which totaled $100.0 million at ~~June~~September 30, 2017. These advances have fixed interest rates and mature in the fourth quarter of 2017.

The Company pledges certain assets, including loans and investment securities, to both the Federal Reserve Bank and the FHLB as security to establish lines of credit and borrow from these entities. Based on the amount and type of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against the collateral. Also, this collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The Federal Reserve Bank also establishes a collateral value of assets pledged to support borrowings from the discount window. The following table reflects the collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company at ~~June~~September 30, 2017.


	June 30, 2017								September 30, 2017
(In thousands)	FHLB			Federal Reserve		Total			FHLB			Federal Reserve		Total
Collateral value pledged	$	2,734,323		$	1,272,837	$	4,007,160		$	2,694,364		$	1,314,120	$	4,008,484
Advances outstanding	(100,000		)	—		(100,000		)	(100,000		)	—		(100,000		)
Letters of credit issued	(555,957		)	—		(555,957		)	(428,935		)	—		(428,935		)
Available for future advances	$	2,078,366		$	1,272,837	$	3,351,203		$	2,165,429		$	1,314,120	$	3,479,549

In addition to those mentioned above, several other sources of liquidity are available. No commercial paper has been issued or outstanding during the past ten years. The Company has no subordinated debt or hybrid instruments which could affect future borrowing capacity. Because of its lack of significant long-term debt, the Company believes that it could generate additional liquidity through its Capital Markets Group from sources such as jumbo certificates of deposit or privately placed corporate debt. The Company receives strong outside rankings from both Standard & Poor's and Moody's on both the consolidated company level and it's subsidiary bank, Commerce Bank, which would support future financing efforts, should the need arise. These ratings are as follows:



	Standard & Poor’s	Moody’s
Commerce Bancshares, Inc.
Issuer rating	A-
Rating outlook	Stable	Stable
Preferred stock	BBB-	Baa1
Commerce Bank
Issuer rating	A	A2
Rating outlook	Stable	Stable
Baseline credit assessment		a1
Short-term rating	A-1	P-1

The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash and cash equivalents of ~~$251.3~~$182.7 million during the first ~~six~~nine months of 2017, as reported in the consolidated statements of cash flows in this report. Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of

$~~212.0~~334.3 million and has historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of ~~$145.0~~$321.2 million. Activity in the investment securities portfolio provided cash of ~~$291.0~~$681.2 million from sales, maturities and pay downs (net of purchases), ~~and repayments of long-term securities purchased under agreements to resell provided cash of $100.0 million. These cash inflows were~~which was partly offset by a net increase in loans of ~~$234.4~~$364.8 million. Financing activities used cash of ~~$608.4~~$838.2 million, largely resulting from a ~~net~~ decrease in total deposits of $437.0 million. In addition, borrowings of federal funds purchased and securities sold under agreements to repurchase ~~of $467.5 million. In addition, deposits~~ decreased ~~$79.8~~$314.9 million, and cash was used to fund dividends paid on common and preferred stock of ~~$50.3~~$75.5 million. Future short-term liquidity needs arising from daily operations are not expected to vary significantly, and the Company believes it will be able to meet these cash flow needs.

Capital Management

The Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions at ~~June~~September 30, 2017 and December 31, 2016, as shown in the following table.


(Dollars in thousands)	June 30, 2017			December 31, 2016			Minimum Ratios under Capital Adequacy Guidelines *		Minimum Ratios for Well-Capitalized Banks **		September 30, 2017			December 31, 2016			Minimum Ratios under Capital Adequacy Guidelines *		Minimum Ratios for Well-Capitalized Banks **
Risk-adjusted assets	$	18,766,184		$	18,994,730						$	18,829,003		$	18,994,730
Tier I common risk-based capital	2,304,532			2,207,370							2,356,506			2,207,370
Tier I risk-based capital	2,449,316			2,352,154							2,501,290			2,352,154
Total risk-based capital	2,627,297			2,529,675							2,695,373			2,529,675
Tier I common risk-based capital ratio	12.28		%	11.62		%	7.00	%	6.50	%	12.52		%	11.62		%	7.00	%	6.50	%
Tier I risk-based capital ratio	13.05		%	12.38		%	8.50	%	8.00	%	13.28		%	12.38		%	8.50	%	8.00	%
Total risk-based capital ratio	14.00		%	13.32		%	10.50	%	10.00	%	14.32		%	13.32		%	10.50	%	10.00	%
Tier I leverage ratio	9.87		%	9.55		%	4.00	%	5.00	%	10.16		%	9.55		%	4.00	%	5.00	%

* as of the fully phased-in date of Jan. 1, 2019, including capital conservation buffer

**under Prompt Corrective Action requirements

The Company maintains a treasury stock buyback program under authorizations by its Board of Directors and normally purchases stock in the open market. The Company purchased ~~188,348~~200,330 shares at an average price of ~~$56.43~~$56.51 during the ~~six~~nine months ended ~~June~~September 30, 2017, which was related to stock-based compensation transactions. At ~~June~~September 30, 2017, ~~3,570,327~~3,558,345 shares remained available for purchase under the current Board authorization.

The Company's common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain adequate capital and liquidity levels, and alternative investment options. The Company paid a $.225 per share cash dividend on its common stock each quarter thus far in ~~both the first and second quarters of~~ 2017, which was a 5% increase compared to its 2016 quarterly dividend.

Commitments, Off-Balance Sheet Arrangements and Contingencies

In the normal course of business, various commitments and contingent liabilities arise which are not required to be recorded on the balance sheet. The most significant of these are loan commitments, which at ~~June~~September 30, 2017 totaled ~~$10.4~~$10.6 billion (including approximately ~~$5.0~~$5.1 billion in unused approved credit card lines). In addition, the Company enters into standby and commercial letters of credit. These contracts totaled ~~$338.8~~$338.4 million and ~~$13.3~~$13.0 million, respectively, at ~~June~~September 30, 2017. As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements. The carrying value of the guarantee obligations associated with the standby letters of credit, which has been recorded as a liability on the consolidated balance sheet, amounted to $2.1 million at ~~June~~September 30, 2017.

The Company regularly purchases various state tax credits arising from third-party property redevelopment. These credits are either resold to third parties at a profit or retained for use by the Company. During the first ~~six~~nine months of 2017, purchases and sales of tax credits amounted to ~~$42.0~~$58.6 million and ~~$31.7~~$44.9 million, respectively. Fees from sales of tax credits were ~~$1.9~~$2.6 million for the ~~six~~nine months ended ~~June~~September 30, 2017, compared to ~~$1.7~~$2.4 million in the same period last year. At ~~June~~September 30, 2017, the Company expected to fund outstanding purchase commitments of ~~$79.2~~$59.3 million during the remainder of ~~2017.~~2017 and $69.7 million in 2018.

Segment Results

The table below is a summary of segment pre-tax income results for the first ~~six~~nine months of 2017 and 2016.


(Dollars in thousands)	Consumer			Commercial			Wealth			Segment Totals			Other/ Elimination			Consolidated Totals			Consumer			Commercial			Wealth			Segment Totals			Other/ Elimination			Consolidated Totals
Six Months Ended June 30, 2017
Nine Months Ended September 30, 2017
Net interest income	$	136,628		$	161,505		$	23,771		$	321,904		$	39,176		$	361,080		$	207,421		$	243,517		$	35,515		$	486,453		$	57,218		$	543,671
Provision for loan losses	(20,464		)	624			1			(19,839		)	(2,047		)	(21,886		)	(31,531		)	959			(9		)	(30,581		)	(2,009		)	(32,590		)
Non-interest income	66,017			96,879			76,557			239,453			697			240,150			101,211			144,781			116,961			362,953			(561		)	362,392
Investment securities gains, net	—			—			—			—			879			879
Investment securities losses, net																			—			—			—			—			(2,158		)	(2,158		)
Non-interest expense	(145,126		)	(147,839		)	(59,795		)	(352,760		)	(18,664		)	(371,424		)	(217,733		)	(219,307		)	(90,323		)	(527,363		)	(28,633		)	(555,996		)
Income before income taxes	$	37,055		$	111,169		$	40,534		$	188,758		$	20,041		$	208,799		$	59,368		$	169,950		$	62,144		$	291,462		$	23,857		$	315,319
Six Months Ended June 30, 2016
Nine Months Ended September 30, 2016
Net interest income	$	133,791		$	153,266		$	21,822		$	308,879		$	26,725		$	335,604		$	201,166		$	231,780		$	32,604		$	465,550		$	41,297		$	506,847
Provision for loan losses	(17,500		)	1,487			(115		)	(16,128		)	(2,527		)	(18,655		)	(26,533		)	3,919			(120		)	(22,734		)	(3,184		)	(25,918		)
Non-interest income	62,935			99,408			71,020			233,363			2,231			235,594			97,165			149,240			107,696			354,101			812			354,913
Investment securities losses, net	—			—			—			—			(1,739		)	(1,739		)	—			—			—			—			(3,704		)	(3,704		)
Non-interest expense	(139,526		)	(140,250		)	(56,944		)	(336,720		)	(17,842		)	(354,562		)	(209,660		)	(211,450		)	(85,116		)	(506,226		)	(29,578		)	(535,804		)
Income before income taxes	$	39,700		$	113,911		$	35,783		$	189,394		$	6,848		$	196,242		$	62,138		$	173,489		$	55,064		$	290,691		$	5,643		$	296,334
Increase (decrease) in income before income taxes:
Amount	$	(2,645	)	$	(2,742	)	$	4,751		$	(636	)	$	13,193		$	12,557		$	(2,770	)	$	(3,539	)	$	7,080		$	771		$	18,214		$	18,985
Percent	(6.7		)%	(2.4		)%	13.3		%	(.3		)%	192.7		%	6.4		%	(4.5		)%	(2.0		)%	12.9		%	.3		%	322.8		%	6.4		%

Consumer

For the ~~six~~nine months ended ~~June~~September 30, 2017, income before income taxes for the Consumer segment decreased ~~$2.6~~$2.8 million, or ~~6.7%~~4.5%, compared to the first ~~six~~nine months of 2016. This decrease in income before taxes was mainly due to higher non-interest expense of ~~$5.6~~$8.1 million, or ~~4.0%~~3.9%, and an increase in the provision for loan losses of ~~$3.0~~$5.0 million, or ~~16.9%~~18.8%. These increases in expense were partly offset by growth in non-interest income of ~~$3.1~~$4.0 million, or ~~4.9%~~4.2%, and net interest income of ~~$2.8~~$6.3 million, or ~~2.1%~~3.1%. Net interest income increased due to a ~~$4.3~~$7.0 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios, partly offset by a decline of ~~$1.5 million~~$751 thousand in loan interest income. Non-interest income increased mainly due to growth in deposit fees (mainly deposit account service fees and overdraft and return item fees), bank card fees, and mortgage banking revenue. Non-interest expense increased over the same period in the previous year due to higher allocated support costs, mainly administrative, online banking and information technology. In addition, salaries ~~bank card rewards, and royalty fees~~ expense increased over the previous year, while supplies and communication expense decreased due to higher chip card reissue costs last year that have now declined. The provision for loan losses totaled ~~$20.5~~$31.5 million, a ~~$3.0~~$5.0 million increase over the first ~~six~~nine months of 2016, which was mainly due to higher credit card loan net charge-offs.

Commercial

For the ~~six~~nine months ended ~~June~~September 30, 2017, income before income taxes for the Commercial segment decreased ~~$2.7~~$3.5 million, or ~~2.4%~~2.0%, compared to the same period in the previous year. This decrease was mainly due to lower non-interest income, higher non-interest expense and an increase in the provision for loan ~~losses and was~~losses. These decreases in income before taxes were partially offset by growth in net interest income. Net interest income increased ~~$8.2~~$11.7 million, or ~~5.4%~~5.1%, due to an increase in loan interest income, partly offset by a decline in net allocated funding credits and higher ~~deposit~~ interest ~~expense.~~expense on deposits and customer repurchase agreements. Non-interest income decreased ~~$2.5~~$4.5 million, or ~~2.5%~~3.0%, from the previous year due to lower ~~swap~~bank card fees, ~~bank card~~swap fees, and capital market fees. These decreases were partly offset by growth in deposit account fees. Non-interest expense increased ~~$7.6~~$7.9 million, or ~~5.4%~~3.7%, mainly due to increases in salaries and benefits expense and allocated service and support costs, partly offset by lower bank card costs. The provision for loan losses increased ~~$863 thousand~~$3.0 million over the same period last year, due to lower net recoveries on construction and business real estate loans.

Wealth

Wealth segment pre-tax profitability for the ~~six~~nine months ended ~~June~~September 30, 2017 increased ~~$4.8~~$7.1 million, or ~~13.3%~~12.9%, over the same period in the previous year. Net interest income increased ~~$1.9~~$2.9 million, or 8.9%, mainly due to an increase in loan interest income. Non-interest income increased ~~$5.5~~$9.3 million, or ~~7.8%~~8.6%, over the prior year largely due to higher private client and institutional trust fees, brokerage fees and cash sweep fees. These increases were partly offset by a ~~trust related~~trust-related settlement received in the second quarter of 2016. Non-interest expense increased ~~$2.9~~$5.2 million, or ~~5.0%~~6.1%, mainly due to higher salary and benefit costs, professional fees and allocated support costs. The provision for loan losses decreased ~~$116~~$111 thousand, mainly due to lower revolving home equity loan net charge-offs.

The Other/Elimination category in the preceding table includes the activity of various support and overhead operating units of the Company, in addition to the investment securities portfolio and other items not allocated to the segments. In accordance with the Company’s transfer pricing procedures, the difference between the total provision and total net charge-offs/recoveries is not allocated to a business segment and is included in this category. The pre-tax profitability of this category was higher than in the same period last year by ~~$13.2~~$18.2 million. This increase was mainly due to higher unallocated net interest income of ~~$12.5~~$15.9 million and lower non-interest expense of $945 thousand, offset by lower non-interest income of ~~$1.5 million and higher non-interest expense of $822 thousand.~~$1.4 million. Unallocated securities ~~gains~~losses were ~~$879 thousand~~$2.2 million in the first ~~six~~nine months of 2017 compared to losses of ~~$1.7~~$3.7 million in 2016. Also, the unallocated loan loss provision decreased ~~$480 thousand,~~$1.2 million, as the provision was $1.9 million in excess of charge-offs in the first ~~six~~nine months of 2017 compared to ~~$2.3~~$3.0 million in excess of charge-offs in the first ~~six~~nine months of 2016.

Regulatory Changes Affecting the Banking Industry

In accordance with the Dodd-Frank Act, the Company began submitting its stress test results to the Federal Reserve in March 2014 and publicly disclosed the results of its stress testing for the first time in June 2015. In 2017, the Company submitted its stress test report to the Federal Reserve in July and ~~expects to~~ publicly ~~disclose~~disclosed the results in October.

The Volcker Rule of the Dodd-Frank Act, effective on April 1, 2014, places trading restrictions on financial institutions and separates investment banking, private equity and proprietary trading (hedge fund) sections of financial institutions from their consumer lending arms. Key provisions restrict banks from simultaneously entering into advisory and creditor roles with their clients, such as with private equity firms. The Volcker Rule also restricts financial institutions from investing in and sponsoring certain types of investments, which must be divested by July 21, 2017. In 2016, the Company withdrew from a private equity fund investment to comply with the Volcker Rule requirement and holds no other significant investments requiring disposal.

Impact of Recently Issued Accounting Standards

Derivatives In March 2016, the FASB issued ASU 2016-05, "Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships", which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendments were effective January 1, 2017 and did not have a significant effect on the Company's consolidated financial statements.

The FASB issued ASU 2016-06, "Contingent Put and Call Options in Debt Instruments", in March 2016. The ASU clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Under the new guidance, the embedded options should be assessed solely in accordance with a four-step decision sequence, with no additional assessment of whether the triggering event is indexed to interest rates or credit risk. The amendments were effective January 1, 2017 and did not have a significant effect on the Company's consolidated financial statements.

The FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities", in August 2017. The ASU improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. These improvements allow the hedging of risk components, ease restrictions on the measurement of the change in fair value of the hedged item, aligns the recognition and presentation of the effects of the hedging instrument and the hedged item, and otherwise simplify hedge accounting guidance. The amendments are effective January 1, 2019 but may be adopted early in any interim period. The Company is currently evaluating whether to adopt the ASU early. As the Company does not currently apply hedge accounting, the Company's consolidated financial statements are not expected to be affected upon adoption of the ASU. The hedging improvements in the new guidance will be considered in the development of risk management strategies in the future.

Investments The FASB issued ASU 2016-07, "Equity Method and Joint Ventures", in March 2016, which eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in ownership or influence. Instead, the cost of acquiring the additional interest should be added to the current basis of the previously held interest, and equity method accounting applied prospectively. The amendments were effective January 1, 2017 and did not have a significant effect on the Company's consolidated financial statements.

Stock Compensation The FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting", in March 2016, in order to reduce complexity in this area and improve the usefulness of information provided to users. Amendments which ~~will affect~~affected public companies ~~include~~included the recognition of excess tax benefits and deficiencies in income tax expense or benefit in the income statement, guidance as to the classification of excess tax benefits on the statement of cash flows, an election to

account for award forfeitures as they occur, and the ability to withhold taxes up to the maximum statutory rate in the applicable jurisdictions without triggering liability classification of the award. The amendments were effective January 1, 2017. As further discussed in Note 12 to the consolidated financial statements, the Company elected to account for forfeitures as they occur.

Consolidation The FASB issued ASU 2016-17, "Interests Held through Related Parties That Are under Common Control", in October 2016. The ASU amends current guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Current GAAP requires a single decision maker to attribute indirect interests held by certain of its related parties entirely to itself, while the amendments require inclusion of those interests on a proportionate basis consistent with indirect interests held through other related parties. The amendments were effective January 1, 2017 and did not have a significant effect on the Company's consolidated financial statements.

Revenue from Contracts with Customers The FASB issued ASU 2014-09, "Revenue from Contracts with Customers", in May 2014, which has been followed by additional clarifying guidance on specified implementation issues. The ASU supersedes revenue recognition requirements in Topic 605, Revenue Recognition, including most industry specific revenue recognition guidance in the FASB Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies specific steps that entities should apply in order to achieve this principle. Under the ASU and related amendments, the guidance is effective for interim and annual periods beginning January 1, 2018 and must be applied retrospectively, whether through a full restatement of prior periods or a cumulative adjustment upon adoption of the ASU.

Approximately 60% of the Company’s revenue is comprised of net interest income on financial assets and financial liabilities, and is explicitly out of scope of the guidance. The Company has identified the primary contracts in scope as those relating to brokerage commissions, trust fees, deposit account fees, real estate sales, and credit card revenues. Over the last twelve months, significant discussions have been held with representatives of the business lines associated with the revenues described above and documentation has been accumulated and reviewed. The Company is currently ~~in the process of~~finalizing contract sampling, which ~~should~~will be completed early in the fourth quarter. The Company’s analysis to date suggests that adoption of this ASU should not alter the way in which revenue for these significant areas is determined currently, but could possibly ~~net~~result in the netting of certain ~~revenues against expense or certain expenses against revenue.~~revenue and expenses. Final conclusions are anticipated to be reached later this year. The Company plans to adopt this ASU on January 1, 2018 and is evaluating whether to adopt on a full retrospective basis or with a cumulative effect adjustment to opening retained earnings (modified retrospective basis), if such adjustment is deemed to be significant.

Liabilities The FASB issued ASU 2016-04, "Recognition of Breakage for Certain Prepaid Stored-Value Products", in March 2016, in order to address current and potential future diversity in practice related to the derecognition of a prepaid stored-value product liability. Such products include prepaid gift cards issued on a specific payment network and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and traveler's checks. The amendments require that the portion of the dollar value of prepaid stored-value products that is ultimately unredeemed (that is, the breakage) be accounted for consistent with the breakage guidance for stored-value product transactions provided in ASC Topic 606 - Revenue from Contracts with Customers. These amendments are effective for interim and annual periods beginning January 1, 2018. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

Income Taxes The FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory", in October 2016. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The amendments require the recognition of income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. This change removes the current exception to the principal of comprehensive recognition of current and deferred income taxes in GAAP (except for inventory). These amendments are effective for reporting periods beginning January 1, 2018 and are not expected to have a significant effect on the Company's consolidated financial statements.

Financial Instruments The FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities", in January 2016. The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income, other than those accounted for under the equity method of accounting or those that result in the consolidation of the investee. Additionally, these amendments require presentation in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk for those liabilities measured at fair value. The amendments also require use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for interim and annual periods beginning January 1, 2018. As required by the ASU, at January 1, 2018, the Company will record a cumulative-effect adjustment which will reclassify net unrealized gains/losses on equity securities from accumulated other comprehensive income to retained earnings. The Company has formed a working group to evaluate the changes required as a result of the adoption of this ASU and

has also engaged outside consultants ~~to assist with data collection and calculation~~who are actively engaged in preliminary estimates of the fair value ~~information, particularly for fair value disclosures~~ of the Company's loan portfolio.

Statement of Cash Flows The FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments", in August 2016. The ASU addresses the presentation and classification in the Statement of Cash Flows of several specific cash flow issues. These include cash payments for debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments, distributions received from equity method investees, and separately identifiable cash flows and application of the predominance principle. The amendments are effective January 1, 2018 and are not expected to have a significant effect on the Company's consolidated financial statements.

The FASB issued ASU 2016-18, "Restricted Cash", in November 2016. The ASU addresses the current diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The ASU requires that amounts described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and end of period amounts shown on the statement of cash flows. Disclosures are to be provided on the nature of restrictions on cash and cash equivalents. When presented in more than one line item within the statement of financial position, the entity shall disclose the amounts, disaggregated by line item, of cash, cash equivalents, restricted cash, and restricted cash equivalents reported within the statement of financial position. The amendments are effective January 1, 2018 and are not expected to have a significant effect on the Company's consolidated financial statements.

Retirement Benefits The FASB issued ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", in March 2017. Under current guidance, the different components comprising net benefit cost are aggregated for reporting in the financial statements. Because these components are heterogeneous, the current presentation reduces the transparency and usefulness of the financial statements. The ASU requires that an employer report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered during the period. The other components of net benefit cost are required to be presented separately from the servicing cost component. Only service cost is eligible for capitalization when applicable. The amendments are effective January 1, 2018 and are not expected to have a significant effect on the Company's consolidated financial statements.

Leases In February 2016, the FASB issued ASU 2016-02, "Leases", in order to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU primarily affects lessee accounting, which requires the lessee to recognize a right-of-use asset and a liability to make lease payments for those leases classified as operating leases under previous GAAP. For leases with a term of 12 months or less, an election by class of underlying asset not to recognize lease assets and lease liabilities is permitted. The ASU also provides additional guidance as to the definition of a lease, identification of lease components, and sale and leaseback transactions. The amendments in the ASU are effective for interim and annual periods beginning January 1, 2019. The Company is the lessee in approximately 200 lease agreements that are subject to this ASU. The Company has formed a working group to assess the changes required and is ~~actively~~ working with its current software vendor to ~~acquire~~review a ~~new~~preliminary software module designed to comply with the new accounting requirements.

Premium Amortization The FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities", in March 2017. Under current guidance, many entities amortize the premium on purchased callable debt securities over the contractual life of the instrument. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium to the earliest call date, and more closely align the amortization period to expectations incorporated in market pricing of the instrument. The amendments are effective January 1, 2019 and are not expected to have a significant effect on the Company's consolidated financial statements.

Financial Instruments ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", was issued in June 2016. Its implementation will result in a new loan loss accounting framework, also known as the current expected credit loss (CECL) model. CECL requires credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities to be recorded at the time of origination. Under the current incurred loss model, losses are recorded when it is probable that a loss event has occurred. The new standard will require significant operational changes, especially in data collection and analysis. The

ASU is effective for interim and annual periods beginning January 1, 2020, and is expected to increase the allowance upon adoption. The Company has formed a working group to assess the standard and has begun assessing the data needs required. In the second quarter of 2017, the Company contracted with a software supplier to assist in the data collection and calculation of the allowance for loan losses under the new model, and is currently collecting loan data to be supplied to the vendor to allow for pro-forma calculations to begin by mid-2018.

Intangible Assets The FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", in January 2017. Under current guidance, a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's goodwill with

the carrying amount of that goodwill by following procedures that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the new amendments, the goodwill impairment test compares the fair value of a reporting unit with its carrying amount and an impairment charge is measured as the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments are effective for impairment tests beginning January 1, 2020 and are not expected to have a significant effect on the Company's consolidated financial statements.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended ~~June~~September 30, 2017 and 2016


	Second Quarter 2017							Second Quarter 2016							Third Quarter 2017							Third Quarter 2016
(Dollars in thousands)	Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid
ASSETS:
Loans:
Business^(A)	$	4,827,439		$	38,606	3.21	%	$	4,691,476		$	33,862	2.90	%	$	4,777,222		$	39,134	3.25	%	$	4,694,340		$	33,924	2.87	%
Real estate — construction and land	862,479			9,256		4.30		789,329			6,789		3.46		887,596			9,649		4.31		821,422			7,184		3.48
Real estate — business	2,701,144			25,219		3.74		2,389,170			21,934		3.69		2,710,453			26,325		3.85		2,432,325			22,195		3.63
Real estate — personal	2,003,997			18,602		3.72		1,905,968			17,827		3.76		2,017,264			18,912		3.72		1,943,951			18,249		3.73
Consumer	1,997,761			19,614		3.94		1,927,925			18,217		3.80		2,070,398			20,986		4.02		1,947,956			19,122		3.91
Revolving home equity	399,730			3,822		3.84		413,198			3,687		3.59		395,212			4,017		4.03		411,832			3,690		3.56
Consumer credit card	731,471			21,705		11.90		738,130			21,184		11.54		739,692			22,422		12.03		750,412			21,804		11.56
Overdrafts	4,505			—		—		3,916			—		—		4,373			—		—		4,652			—		—
Total loans	13,528,526			136,824		4.06		12,859,112			123,500		3.86		13,602,210			141,445		4.13		13,006,890			126,168		3.86
Loans held for sale	18,341			263		5.75		56,272			692		4.95		21,227			287		5.36		26,597			334		5.00
Investment securities:
U.S. government and federal agency obligations	910,821			5,731		2.52		698,374			6,047		3.48		917,808			3,232		1.40		726,469			4,436		2.43
Government-sponsored enterprise obligations	450,362			1,782		1.59		666,354			5,015		3.03		456,668			1,855		1.61		481,573			2,710		2.24
State and municipal obligations^(A)	1,771,674			15,924		3.61		1,763,849			15,804		3.60		1,699,365			15,279		3.57		1,747,794			15,821		3.60
Mortgage-backed securities	3,708,124			21,702		2.35		3,394,466			19,892		2.36		3,718,697			22,155		2.36		3,366,292			20,099		2.38
Asset-backed securities	2,335,344			10,037		1.72		2,377,708			8,594		1.45		2,025,415			9,288		1.82		2,340,783			8,698		1.48
Other marketable securities^(A)	326,398			2,249		2.76		337,572			2,325		2.77		327,634			2,254		2.73		334,747			2,307		2.74
Trading securities^(A)	21,062			142		2.70		20,540			116		2.27		21,149			134		2.51		18,433			112		2.42
Non-marketable securities^(A)	101,790			2,915		11.49		116,103			2,319		8.03		102,995			1,676		6.46		113,954			2,932		10.24
Total investment securities	9,625,575			60,482		2.52		9,374,966			60,112		2.58		9,269,731			55,873		2.39		9,130,045			57,115		2.49
Federal funds sold and short-term securities
purchased under agreements to resell	13,115			37		1.13		11,916			19		.64		23,807			78		1.30		13,054			20		.61
Long-term securities purchased
under agreements to resell	665,655			3,684		2.22		824,999			3,354		1.64		662,490			3,805		2.28		766,302			3,328		1.73
Interest earning deposits with banks	139,061			362		1.04		125,024			151		.49		211,219			662		1.24		207,944			268		.51
Total interest earning assets	23,990,273			201,652		3.37		23,252,289			187,828		3.25		23,790,684			202,150		3.37		23,150,832			187,233		3.22
Allowance for loan losses	(157,003		)					(151,622		)					(156,909		)					(153,517		)
Unrealized gain on investment securities	102,935							191,565							116,873							235,169
Cash and due from banks	349,132							372,275							348,554							362,130
Land, buildings and equipment, net	344,310							351,095							345,139							347,621
Other assets	413,086							389,844							428,537							441,798
Total assets	$	25,042,733						$	24,405,446						$	24,872,878						$	24,384,033
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	$	831,038		240		.12		$	787,478		224		.11		$	829,197		252		.12		$	778,663		239		.12
Interest checking and money market	10,667,042			4,102		.15		10,287,923			3,324		.13		10,387,212			4,189		.16		10,210,744			3,380		.13
Time open & C.D.'s of less than $100,000	688,047			674		.39		758,703			709		.38		667,710			676		.40		740,729			683		.37
Time open & C.D.'s of $100,000 and over	1,510,001			2,822		.75		1,635,892			2,347		.58		1,326,290			2,784		.83		1,435,001			2,186		.61
Total interest bearing deposits	13,696,128			7,838		.23		13,469,996			6,604		.20		13,210,409			7,901		.24		13,165,137			6,488		.20
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase	1,363,031			2,038		.60		1,211,892			725		.24		1,500,987			2,846		.75		1,163,728			724		.25
Other borrowings	105,311			911		3.47		104,649			907		3.49		101,904			906		3.53		102,769			906		3.51
Total borrowings	1,468,342			2,949		.81		1,316,541			1,632		.50		1,602,891			3,752		.93		1,266,497			1,630		.51
Total interest bearing liabilities	15,164,470			10,787		.29	%	14,786,537			8,236		.22	%	14,813,300			11,653		.31	%	14,431,634			8,118		.22	%
Non-interest bearing deposits	7,065,849							6,885,889							7,135,703							7,096,218
Other liabilities	203,139							260,179							251,714							306,306
Equity	2,609,275							2,472,841							2,672,161							2,549,875
Total liabilities and equity	$	25,042,733						$	24,405,446						$	24,872,878						$	24,384,033
Net interest margin (T/E)				$	190,865						$	179,592						$	190,497						$	179,115
Net yield on interest earning assets						3.19	%						3.11	%						3.18	%						3.08	%

(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

~~Six~~Nine Months Ended ~~June~~September 30, 2017 and ~~2017~~2016


	Six Months 2017							Six Months 2016							Nine Months 2017							Nine Months 2016
(Dollars in thousands)	Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance			Interest Income/Expense		Avg. Rates Earned/Paid
ASSETS:
Loans:
Business^(A)	$	4,866,837		$	75,192	3.12	%	$	4,591,516		$	65,955	2.89	%	$	4,836,637		$	114,326	3.16	%	$	4,626,041		$	99,879	2.88	%
Real estate — construction and land	845,343			17,126		4.09		735,943			12,750		3.48		859,582			26,775		4.16		764,644			19,934		3.48
Real estate — business	2,673,491			48,915		3.69		2,385,632			43,875		3.70		2,685,947			75,240		3.75		2,401,310			66,070		3.68
Real estate — personal	2,008,203			37,175		3.73		1,907,750			35,728		3.77		2,011,257			56,087		3.73		1,919,905			53,977		3.76
Consumer	1,986,391			38,545		3.91		1,931,251			36,809		3.83		2,014,701			59,531		3.95		1,936,860			55,931		3.86
Revolving home equity	402,565			7,464		3.74		421,440			7,448		3.55		400,087			11,481		3.84		418,214			11,138		3.56
Consumer credit card	739,582			43,208		11.78		745,114			42,539		11.48		739,619			65,630		11.86		746,893			64,343		11.51
Overdrafts	4,346			—		—		4,344			—		—		4,355			—		—		4,447			—		—
Total loans	13,526,758			267,625		3.99		12,722,990			245,104		3.87		13,552,185			409,070		4.04		12,818,314			371,272		3.87
Loans held for sale	15,174			459		6.10		32,816			827		5.07		17,214			746		5.79		30,728			1,161		5.05
Investment securities:
U.S. government and federal agency obligations	912,140			10,445		2.31		700,793			6,740		1.93		914,050			13,677		2.00		709,414			11,176		2.10
Government-sponsored enterprise obligations	450,425			3,541		1.59		721,421			8,736		2.44		452,529			5,396		1.59		640,888			11,446		2.39
State and municipal obligations^(A)	1,777,357			31,991		3.63		1,741,218			31,446		3.63		1,751,074			47,270		3.61		1,743,426			47,267		3.62
Mortgage-backed securities	3,734,065			43,800		2.37		3,409,591			40,728		2.40		3,728,886			65,955		2.36		3,395,053			60,827		2.39
Asset-backed securities	2,347,427			19,517		1.68		2,457,590			17,389		1.42		2,238,910			28,805		1.72		2,418,370			26,087		1.44
Other marketable securities^(A)	329,503			4,559		2.79		339,977			4,701		2.78		328,873			6,813		2.77		338,221			7,008		2.77
Trading securities^(A)	23,102			314		2.74		19,365			246		2.55		22,444			448		2.67		19,052			358		2.51
Non-marketable securities^(A)	101,268			8,151		16.23		121,936			4,396		7.25		101,850			9,827		12.90		119,256			7,328		8.21
Total investment securities	9,675,287			122,318		2.55		9,511,891			114,382		2.42		9,538,616			178,191		2.50		9,383,680			171,497		2.44
Federal funds sold and short-term securities
purchased under agreements to resell	11,510			60		1.05		14,647			43		.59		15,654			138		1.18		14,112			63		.60
Long-term securities purchased
under agreements to resell	695,164			7,477		2.17		837,637			6,829		1.64		684,153			11,282		2.20		813,685			10,157		1.67
Interest earning deposits with banks	173,263			759		.88		172,330			421		.49		186,054			1,421		1.02		184,288			689		.50
Total interest earning assets	24,097,156			398,698		3.34		23,292,311			367,606		3.17		23,993,876			600,848		3.35		23,244,807			554,839		3.19
Allowance for loan losses	(156,170		)					(151,465		)					(156,419		)					(152,154		)
Unrealized gain on investment securities	83,071							170,442							94,462							192,175
Cash and due from banks	362,723							396,538							357,948							384,985
Land, buildings and equipment, net	345,115							354,042							345,123							351,886
Other assets	415,036							392,485							419,586							409,043
Total assets	$	25,146,931						$	24,454,353						$	25,054,576						$	24,430,742
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	$	813,464		486		.12		$	774,249		452		.12		$	818,766		738		.12		$	775,731		691		.12
Interest checking and money market	10,635,689			7,746		.15		10,208,233			6,580		.13		10,551,953			11,935		.15		10,209,076			9,960		.13
Time open & C.D.'s of less than $100,000	696,544			1,318		.38		766,962			1,451		.38		686,827			1,994		.39		758,154			2,134		.38
Time open & C.D.'s of $100,000 and over	1,590,118			5,585		.71		1,559,796			4,333		.56		1,501,209			8,369		.75		1,517,894			6,519		.57
Total interest bearing deposits	13,735,815			15,135		.22		13,309,240			12,816		.19		13,558,755			23,036		.23		13,260,855			19,304		.19
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase	1,359,692			3,577		.53		1,308,323			1,613		.25		1,407,308			6,423		.61		1,259,773			2,337		.25
Other borrowings	103,670			1,799		3.50		241,180			2,160		1.80		103,075			2,705		3.51		194,706			3,066		2.10
Total borrowings	1,463,362			5,376		.74		1,549,503			3,773		.49		1,510,383			9,128		.81		1,454,479			5,403		.50
Total interest bearing liabilities	15,199,177			20,511		.27	%	14,858,743			16,589		.22	%	15,069,138			32,164		.29	%	14,715,334			24,707		.22	%
Non-interest bearing deposits	7,155,774							6,895,781							7,149,010							6,963,081
Other liabilities	218,556							257,308							229,730							273,760
Equity	2,573,424							2,442,521							2,606,698							2,478,567
Total liabilities and equity	$	25,146,931						$	24,454,353						$	25,054,576						$	24,430,742
Net interest margin (T/E)				$	378,187						$	351,017						$	568,684						$	530,132
Net yield on interest earning assets						3.16	%						3.03	%						3.17	%						3.05	%

(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Company primarily uses earnings simulation models to analyze net interest sensitivity to movement in interest rates. The Company performs monthly simulations which model interest rate movements and risk in accordance with changes to its balance sheet composition. For further discussion of the Company’s market risk, see the Interest Rate Sensitivity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2016 Annual Report on Form 10-K.

The tables below compute the effects of gradual rising interest rates over a twelve month period on the Company’s net interest income, assuming a static balance sheet with the exception of deposit attrition. The difference between the two simulations is the amount of deposit attrition incorporated, which is shown in the tables below. In both simulations, three rising rate scenarios were selected as shown in the tables, and net interest income was calculated and compared to a base scenario in which assets, liabilities and rates remained constant over a twelve month period. For each of the simulations, interest rates applicable to each interest earning asset or interest bearing liability were ratably increased during the year (by either 100, 200 or 300 basis points). The balances contained in the balance sheet were assumed not to change over the twelve month period, except that as presented in the tables below, it was assumed certain non-maturity type deposit attrition would occur, as a result of higher interest rates, and would be replaced with short-term federal funds borrowings.

The simulations reflect two different assumptions related to deposit attrition. The Company utilizes these simulations both for monitoring interest rate risk and for liquidity planning purposes. While the future effects of rising rates on deposit balances cannot be known, the Company maintains a practice of running multiple rate scenarios to better understand interest rate risk and its effect on the Company’s performance. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising rates and falling rates and has adopted strategies which minimize impacts to overall interest rate risk.


Simulation A	June 30, 2017							March 31, 2017							September 30, 2017							June 30, 2017
(Dollars in millions)	$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit Attrition			$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit Attrition			$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit Attrition			$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit Attrition
300 basis points rising	$	15.1	2.09	%	$	(368.0	)	$	18.1	2.54	%	$	(379.4	)	$	10.4	1.41	%	$	(356.9	)	$	15.1	2.09	%	$	(368.0	)
200 basis points rising	14.3		1.99		(256.2		)	16.6		2.33		(266.7		)	10.7		1.45		(246.5		)	14.3		1.99		(256.2		)
100 basis points rising	9.1		1.26		(131.4		)	10.8		1.52		(140.0		)	7.1		.96		(125.7		)	9.1		1.26		(131.4		)


Simulation B	June 30, 2017								March 31, 2017								September 30, 2017								June 30, 2017
(Dollars in millions)	$ Change in Net Interest Income			% Change in Net Interest Income		Assumed Deposit Attrition			$ Change in Net Interest Income			% Change in Net Interest Income		Assumed Deposit Attrition			$ Change in Net Interest Income			% Change in Net Interest Income		Assumed Deposit Attrition			$ Change in Net Interest Income			% Change in Net Interest Income		Assumed Deposit Attrition
300 basis points rising	$	(5.6	)	(.78	)%	$	(1,181.4	)	$	(3.3	)	(.45	)%	$	(1,269.4	)	$	(10.8	)	(1.45	)%	$	(1,122.0	)	$	(5.6	)	(.78	)%	$	(1,181.4	)
200 basis points rising	(3.2		)	(.44	)	(1,072.5		)	(1.3		)	(.19	)	(1,161.5		)	(7.3		)	(.98	)	(1,013.2		)	(3.2		)	(.44	)	(1,072.5		)
100 basis points rising	(5.1		)	(.71	)	(952.4		)	(3.6		)	(.51	)	(1,042.3		)	(7.6		)	(1.03	)	(895.2		)	(5.1		)	(.71	)	(952.4		)

The difference in these two simulations is the degree in which deposits are modeled to decline as noted in the above table. Both simulations assume that a decline in deposits would be offset by increased short-term borrowings, which are more rate sensitive and can result in higher interest costs in a rising rate environment. Under Simulation A, a gradual increase in interest rates of 100 basis points is expected to increase net interest income from the base calculation by ~~$9.1~~$7.1 million, while a gradual increase in rates of 200 basis points would increase net interest income by ~~$14.3~~$10.7 million. An increase in rates of 300 basis points would result in an increase in net interest income of ~~$15.1~~$10.4 million. The change in net interest income from the base calculation at ~~June~~September 30, 2017 was lower than projections made at ~~March 31,~~June 30, 2017 largely due to ~~a Federal Reserve rate increase during the second quarter of 2017 and~~ higher ~~rates paid on certificates of deposit, partly offset lower balances. Higher~~ rates and balances of repurchase agreements, ~~as well as higher balances of interest checking and money market deposits, also~~which increased interest expense ~~this quarter, lowering~~and lowered net interest income projections for the ~~second~~third quarter of 2017 compared to the prior quarter. In addition, the Company's investment portfolio is projected to produce less interest income, as a combination of lower investment securities balances and fewer variable rate securities at September 30, 2017 results in the portfolio being less rate sensitive in a rising rate environment.

Under Simulation B, the same assumptions utilized in Simulation A were applied. However, in Simulation B, deposit attrition was accelerated to consider the effects that large deposit outflows might have on net interest income and liquidity planning purposes. The effect of higher deposit attrition was that greater reliance was placed on short-term borrowings at higher rates, which are more

rate sensitive. As shown in the table, under these assumptions, net interest income in Simulation B was significantly lower than in Simulation A, reflecting higher costs for short-term borrowings.

Projecting deposit activity in a historically low interest rate environment is difficult, and the Company cannot predict how deposits will react to rising rates. The comparison provided above provides insight into potential effects of changes in rates and deposit levels on net interest income.

Item 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~June~~September 30, 2017. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There were no changes in the Company's internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The information required by this item is set forth in Part I, Item 1 under Note 15, Legal and Regulatory Proceedings.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information about the Company's purchases of its $5 par value common stock, its only class of common stock registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

Period
Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as part of Publicly Announced Program Maximum Number that May Yet Be Purchased Under the Program
April 1 — 30, 2017 53,468
$ 54.05
53,468
3,578,470
May 1 — 31, 2017 5,501
$ 55.19
5,501
3,572,969
June 1 — 30, 2017 2,642
$ 56.91
2,642
3,570,327
Total 61,611
$ 54.27
61,611
3,570,327



Period	Total Number of Shares Purchased	Average Price Paid per Share			Total Number of Shares Purchased as part of Publicly Announced Program	Maximum Number that May Yet Be Purchased Under the Program
July 1 — 31, 2017	10,091		$	57.85	10,091	3,560,236
August 1 — 31, 2017	815		$	57.06	815	3,559,421
September 1 — 30, 2017	1,076		$	57.38	1,076	3,558,345
Total	11,982		$	57.75	11,982	3,558,345

The Company's stock purchases shown above were made under authorizations by the Board of Directors. Under the most recent authorization in October 2015 of 5,000,000 shares, ~~3,570,327~~3,558,345 shares remained available for purchase at ~~June~~September 30, 2017.

Item 6. EXHIBITS

~~See Index~~31.1 — Certification of CEO pursuant to ~~Exhibits.~~Section 302 of the Sarbanes-Oxley Act of 2002

31.2 — Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 — Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 — Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



COMMERCE BANCSHARES, INC.

By	/s/ THOMAS J. NOACK
	Thomas J. Noack
	Vice President & Secretary

Date: ~~August 7,~~November 6, 2017



By	/s/ JEFFERY D. ABERDEEN
	Jeffery D. Aberdeen
	Controller
	(Chief Accounting Officer)

Date: ~~August 7,~~November 6, 2017

~~INDEX TO EXHIBITS~~

~~31.1 — Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2 — Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32 — Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~